Pound rises on M&A deal

Sterling climbed after SoftBank Group agreed to buy ARM Holdings in the biggest takeover of a British company since the country last month decided to leave the EU.

The UK currency also advanced against the euro as Bank of England policy maker Martin Weale said “firmer evidence” was needed on the impact of Brexit before the central bank considered additional stimulus.

The pound surged last week after the Bank of England left policy unchanged.

That decision had surprised markets, where futures contracts had largely priced in a rate cut.

The ARM deal may confound some traders who were expecting Brexit would deter new investment and further undermine the pound.

The currency was also supported in recent days by the appointment of Theresa May as the UK’s prime minister, removing uncertainty as to who would lead Britain through its EU departure.

Sterling was the best performer among its Group-of-10 peers yesterday.

“It’s a $32bn (€28.9bn) purchase — market participants tend to front-run M&A movements,” said Marshall Gittler, the head of investment research at FXPrimus Europe in Limassol, Cyprus.

“This is a huge amount of money that is obviously going to flow into the UK,” he said.

The pound climbed 0.8% to $1.3296 in late trading in London, adding to last week’s 1.8% gain, its best since March.

Sterling appreciated 0.4% to 83.31p against the euro.

However, analysts remain pessimistic on the pound, predicting it will fall more than 4% to $1.27 by year-end.

Even with the appointment of Ms May and her cabinet, the outcome of negotiations for exiting the EU is far from certain.

Reports this week from June and July will signal how the economy performed around the time of the Brexit vote.

Mr Weale “more or less wants to see incoming data that’s actually an indication of the economy” during the Brexit process, said Manuel Oliveri, a currency strategist at Credit Agricole’s corporate and investment-banking in London.

That “should leave the currency quite sensitive to incoming data releases”, he said.

SoftBank is offering a 43% premium to Friday’s closing price in the Japanese company’s biggest deal ever.


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