Sterling jumps as UK PM survives confidence vote, euro gains

[NEW YORK] The pound rallied on Wednesday, rebounding from a 20-month low, as British Prime Minister Theresa May survived a no-confidence vote on her leadership that will allow her to press ahead with an attempt to salvage her deal for Britain to exit the European Union.

The euro rose against the US dollar, meanwhile, following a revised Italian budget proposal to the EU that is lighter on debt.

An index that tracks the dollar against a basket of currencies including the euro and sterling retreated below a near one-month peak reached on Tuesday.

In a secret ballot, Mrs May won support among two-thirds of her Conservative colleagues. It remained unclear, however, whether she could push her Brexit proposal across the finishing line, which could renew selling pressure on the sterling, analysts said.

On Monday, she deferred a Commons vote on the proposed deal due to a lack of support and must now try to gain assurances from EU leaders that will win over reluctant lawmakers.

"Consequently, the prime minister and the pound don't appear to be out of the woods," said Joe Manimbo, senior market analyst at Western Union Business Solution in Washington.

Sterling rose 1.14 per cent to US$1.2627, bouncing from a 20-month low of US$1.2477 set earlier in the session. Against sterling, the euro fell 0.6 per cent to 99.05 pence, but against the US dollar, the single currency gained 0.45 per cent at US$1.1369.

Earlier on Wednesday, Italy proposed a budget deficit target of 2 per cent, below the previous target of 2.4 per cent that Brussels had rejected.

The US dollar index was down 0.34 per cent at 97.054 amid fears of a federal government shutdown by year-end.

On Tuesday, US President Donald Trump had threatened not to sign an agreement to fund the government if lawmakers did not agree to fund his proposed border wall.

The greenback's losses were limited by higher US bond yields and in-line data on domestic consumer prices in November which showed the underlying inflation trend remained firm.

The latest CPI report supported the view the Federal Reserve would raise short-term interest rates by a quarter point to 2.25-2.50 per cent at its upcoming two-day policy meeting.

The futures market implied traders saw a 78 per cent chance the US central bank would increase rates for a fourth time in 2019 next week, slightly higher than 76 per cent late on Tuesday, according to CME Group's FedWatch programme.

REUTERS