Three Possible Scenarios :
1) Deal initially rejected, but with a small margin
As mentioned earlier, counting the public rejections is enough for a vote against the accord. Moreover, the government was already defeated in the procedural vote. However, there is a good chance that May musters enough loyalists to make it a "respectable loss": only by 50 MP's or fewer.
In this scenario, GBP/USD falls significantly and so do stock markets but without a total collapse. This scenario is somewhat priced in. The PM then returns to Brussels to renegotiate a better deal. After quick and intense talks she returns with minor tweaks.
The combination of May's new achievements, the fear of a greater crash in markets, and also fear of new elections and MP's losing their seat changes some minds. A second vote on the amended deal is held and this time it passes by a small margin. The Pound rallies alongside stocks.
Many Conservative MP's are afraid of a new election that would bring Labour's Jeremy Corbyn to power. They would also find it easier to justify their change of heart if the deal changes. And while the DUP is expected to reject a second agreement as well, there may be enough Labour rebels to pass May's deal over the line.
There is always a chance of failure in the second vote. While it is low in the second time around, it would lead us to the second scenario.
GBP/USD reaction: choppy, first down, then probably up.
2) Deal rejected with an overwhelming majority
In this scenario, things get worse for the government, especially after the legal advice is a dent in May's efforts to convince swing Tories to vote for her. In addition, Labour whips get their act together and only very few members break the party line and vote with the government.
The outcome is a defeat by well over 50 MP's, perhaps as broad as 100. Such an outcome will leave May in an even more perilous state and she will be called to resign. The level of uncertainty will be extremely high, sending the Pound taking a deep dive with stocks.
MP's will then decide on the next steps, but as mentioned, they are deeply divided, opening three sub-scenarios.
The longer the uncertainty continues, the deeper the dive.
2a) Elections without progress on Brexit
There are various outcomes in this scenario, with the most likely one being a general election. This would prolong uncertainty. In addition, the opposition Labour Party has a good chance of winning. Markets will not like the prospects of Jeremy Corbyn, a hard-left leader, entering 10 Downing Street.
While the election campaign continues, the clock continues ticking towards March 29th, 2019, Brexit Day. Without a deal, the UK leaves without a deal. The prospects of a hard Brexit will rise and GBP/USD could dig the bottom.
2b) A second referendum
In another sub-scenario for a broad rejection of the deal, MP's could decide to hold a second referendum on the deal. However, it is unclear what the question will be: The deal and no-deal? The Deal and no Brexit? Or all three options.
In any case, a second vote could add further pressure on the Pound.
2c) Revoking Article 50
Most MP's are pro-Remain but have vowed to respect the will of the people. But amid a political chaos, they could decide to revoke Article 50 and reverse Brexit, at least temporarily, to provide some calm. They will also pledge to continue with Brexit in a more orderly fashion after a serious debate and new elections.
New elections mean uncertainty but canceling Brexit will likely cause markets to cheer and rally hard. Sterling could surge to new highs.
All in all, the scenario of a considerable defeat will be initially negative for GBP/USD and will most likely turn even worse. Only if MP's decide to undo Brexit will Sterling surge.
GBP/USD reaction: A plunge, unless MP's immediately plot revoking Article 50.
3) Deal surprisingly passes
The PM has shown a lot of resilience in selling her Brexit deal. She does not miss an opportunity to address the public and Parliament and shows a great knowledge of the detail. Her stamina may convince some Tory Brexiteers that rejecting the deal may cancel Brexit.
Moreover, the fear of new elections and a loss of their seats may also make them change their minds. Another political calculation, at least by the contenders to inherit May, is that they would prefer her to own Brexit and they could still blame her later.
In addition, more Labour rebels may prefer to "get over with Brexit" and not go against the "will of the people." Similar to the argument about Tory Brexiteers, they would prefer the deal to pass and save their powder for the day after Brexit. Most of the blame for a disappointment from the deal will fall on the government anyway, and Labour could reap the political benefits.
In this scenario, the deal passes by a strong margin. GBP/USD rallies hard on this unexpected outcome that is not priced in at all. A huge dose of uncertainty is removed, at least until the transition ends, which is at least the end of 2020.
All in all, the low probability and the sudden certainty may result in a massive rally.
GBP/USD reaction: A surge.