Sterling retreated today from nine-month highs as traders braced for the week's third parliamentary Brexit vote, this time on whether to extend Britain's March 29 deadline for exiting the European Union. 

The pound had enjoyed its biggest one-day gain against the dollar yesterday since last April after UK lawmakers resoundingly voted to reject a no-deal Brexit.

Investors expect the result could prompt eurosceptic parliamentarians to finally back the unpopular deal Prime Minister Theresa May negotiated with the EU, or may lead to a long Brexit delay that eventually reverses the result of the 2016 referendum. 

Both those scenarios would be positive for sterling by ruling out a disorderly exit from the EU. 

However, some of the optimism has given way, with no sign that lawmakers can reach any consensus on amending May's deal so it is acceptable to all sides and the EU. 

Tim Graf, head of macro strategy at State Street Global Advisors, said the chances of a no-deal Brexit were now less than 5% but warned of risks.

UK MPs will vote later today on delaying Britain's EU departure beyond March 29. However all 27 EU members must approve the extension. 

May is also pushing lawmakers to vote again next week on a deal they have twice rejected.

The pound was 0.7% lower at $1.3242 this afternoon. Against the euro, it was down 0.5% at 85.40 pence.

Sterling has swung wildly this week, trading between extremes of $1.2945 and $1.3380. 

It surged more than 1% against both the dollar and euro yesterday when parliament voted resoundingly against leaving without a transition deal. 

It also reached a peak of 84.72 pence to the euro, approaching recent 22-month highs. 

However, it later retreated as traders contemplated the array of possibilities that have opened up, including a second referendum or a general election. 

Volatility could also stem from amendments lawmakers have filed before the vote; one seeks a second Brexit referendum while another aims to rule it out. 

If the former is passed, the pound could rally further, based on hopes that voters will reverse the results of the original 2016 referendum.