FOREX-Sterling rallies before no-confidence vote, euro rises - Reuters

    * Vote on UK PM May's leadership at 1800 to 2000 GMT
    * Italy to submit budget to EU with lower debt target - report
    * Dollar's losses limited by higher yields, in-line CPI
    * Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

 (Updates market action, changes dateline, previous LONDON)
    By Richard Leong
    NEW YORK, Dec 12 (Reuters) - 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 least 185 of her 315 Conservative lawmakers had expressed public support for her by 10:13 a.m. ET
(1513 GMT), according to a Reuters tally.
    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.
    The greenback's losses were limited by higher U.S. bond yields and in-line data on domestic consumer
prices in November which showed the underlying inflation trend remains firm.
    The latest CPI report supported the view the Federal Reserve would raise key short-term lending rates
by a quarter point to 2.25-2.50 percent at its upcoming two-day policy meeting.
    The futures market implied traders saw a 78 percent chance the U.S. central bank would increase rates
for a fourth time in 2019 next week, slightly higher than 76 percent late on Tuesday, according to CME
Group's FedWatch program.
========================================================
    Currency bid prices at 10:24AM (1524 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct     High Bid    Low Bid
                                              Previous                   Change                 
                                              Session                                           
 Euro/Dollar      EUR=        $1.1371        $1.1314     +0.50%         -5.21%      +1.1372     +1.1314
 Dollar/Yen       JPY=        113.2600       113.3700    -0.10%         +0.52%      +113.5100   +113.2400
 Euro/Yen         EURJPY=     128.79         128.30      +0.38%         -4.71%      +128.8300   +128.3000
 Dollar/Swiss     CHF=        0.9919         0.9933      -0.14%         +1.81%      +0.9965     +0.9920
 Sterling/Dollar  GBP=        1.2640         1.2484      +1.25%         -6.45%      +1.2646     +1.2479
 Dollar/Canadian  CAD=        1.3335         1.3388      -0.40%         +6.03%      +1.3398     +1.3333
 Australian/Doll  AUD=        0.7228         0.7206      +0.31%         -7.36%      +0.7230     +0.7199
 ar                                                                                             
 Euro/Swiss       EURCHF=     1.1279         1.1240      +0.35%         -3.51%      +1.1296     +1.1236
 Euro/Sterling    EURGBP=     0.8994         0.9061      -0.74%         +1.25%      +0.9069     +0.8985
 NZ Dollar/Dolar  NZD=        0.6854         0.6876      -0.32%         -3.27%      +0.6900     +0.6825
 Dollar/Norway    NOK=        8.5633         8.5760      -0.15%         +4.34%      +8.5937     +8.5619
 Euro/Norway      EURNOK=     9.7379         9.7078      +0.31%         -1.12%      +9.7422     +9.7036
 Dollar/Sweden    SEK=        9.0960         9.0880      +0.56%         +10.90%     +9.1618     +9.0729
 Euro/Sweden      EURSEK=     10.3430        10.2849     +0.56%         +5.12%      +10.3775    +10.2743
    

    
 (Additional reporting by Saikat Chatterjee in LONDON
Editing by Hugh Lawson and Phil Berlowitz)
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