The pound jumped on Wednesday, rebounding from a 20-month low, as traders bet UK Prime Minister Theresa May would survive a no-confidence vote on her leadership, allowing her to salvage her deal for Britain to exit the European Union. A Bloomberg report on a revised Italian budget proposal to the European Union that is lighter on debt lifted the euro from a near 1-1/2 week low.
An index that tracks the dollar against a basket of currencies that includes the euro and sterling retreated below a near one-month peak reached on Tuesday. Even if May fends off the challenge to her leadership triggered by her own Conservative party, it remains uncertain whether she has enough support for her Brexit deal with Brussels, analysts said.
"Accordingly, sterling upside could be limited if May wins the leadership challenge unless or until there are clearer signs that parliament is willing to pass the withdrawal deal," Erik Nelson, currency strategist at Wells Fargo Securities, said in a research note. A secret ballot on the no-confidence vote on May will be held between 1 p.m. and 3 p.m. ET (1800 and 2000 GMT) in a room at the House of Commons, and an announcement is due at 4 p.m. ET (2100 GMT).
At 10:23 a.m. (1523 GMT), the sterling was 1.25 percent higher at $1.2641, bouncing from a 20-month low of $1.2477 set earlier Wednesday. The euro was down 0.76 percent at 89.95 pence.
Against the dollar, the single currency gained 0.47 percent at $1.1371. It was bolstered by a Bloomberg report that Italy is to propose a budget deficit target of 2 percent, below the previous target of 2.4 percent which Brussels rejected earlier. The dollar index was down 0.31 percent at 97.088.
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