The pound rose against the dollar and the euro on Wednesday as traders priced in an increased chance of the UK staying in the EU following a disastrous day for the prime minister.

An unprecedented string of three defeats for the government and a key decision on Brexit from Europe’s top court sent sterling up 0.42 per cent against the dollar at $1.2771 and 0.34 per cent higher against the euro to €1.1242.

Trade minister Liam Fox told a parliamentary committee on Wednesday that there was a danger that MPs would “steal” Brexit from the people.

That came as MPs voted to give the Commons greater powers if Ms May’s deal is rejected next week.

Hours earlier, a European Court of Justice official said that Britain has the power to cancel Brexit by unilaterally revoking Article 50 if it wants to.

The political drama which has regularly hammered sterling since the EU referendum this time acted as a support with analysts revising their probabilities on the UK remaining in the EU.

JPMorgan put a 40 per cent likelihood on that outcome, up from 20 per cent at the start of the week. “The UK now appears to have the option of revoking unilaterally and taking a period of time of its own choosing to decide what happens next,” JPMorgan economist Malcolm Barr wrote in a note to clients.

He halved the probability of a no-deal Brexit from 20 per cent to 10 per cent and put an orderly Brexit at 50-50.

Meanwhile, a volley of tweets from Donald Trump punctured the optimism in markets that had followed news of a truce between the US and China.

Just days after talks between the world’s two economic superpowers the US president once again fired off warning shots over trade, tweeting: “We are either going to have a REAL DEAL with China, or no deal at all - at which point we will be charging major Tariffs against Chinese product being shipped into the United States.

“Ultimately, I believe, we will be making a deal - either now or into the future…”

The president’s words helped to put downward pressure on the dollar as scepticism grew that Bejing and Washington would agree terms within the agreed 90-day window.

Lukman Otunuga, research analyst at FXTM said: “The tremors created from President Trump’s Twitter outbursts continue to illustrate how financial markets remain extremely sensitive to trade-related newsflow.

“Although the Trump Administration has repeatedly blamed the Federal Reserve’s monetary policy tightening for the unfavourable investor mood in stocks, the key culprit behind the selloff witnessed yesterday was clearly the comment made by Trump on trade with China.