Pound Rises on $32 Billion ARM Deal With Weale Wary on Stimulus

  • BOE’s Weale says more evidence needed before policy action
  • Sterling best performer among G-10 currencies on Monday

ARM's $32bn Deal - Just What Brexit Britain Needs?

The pound climbed after SoftBank Group Corp. agreed to buy ARM Holdings Plc for 24.3 billion pounds ($32.3 billion) in the biggest takeover of a British company since the country last month decided to leave the European Union.

The U.K. currency also advanced versus the euro as Bank of England policy maker Martin Weale said “firmer evidence” was needed on the impact of Brexit before the central bank considers additional stimulus. The pound surged last week after the BOE left policy unchanged, surprising 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 U.K.’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 on Monday.

“It’s a $32 billion purchase -- market participants tend to front-run M&A movements,” said Marshall Gittler, 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 U.K.”

The pound climbed 0.8 percent to $1.3296 as of 4:26 p.m. London time, adding to last week’s 1.8 percent gain, its best since March. Sterling appreciated 0.4 percent to 83.31 pence per euro.

Pound Forecasts

Analysts remain pessimistic on the pound, predicting it will fall more than 4 percent to $1.27 by year-end. Even with the appointment of 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.

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 SA’s corporate and investment-banking in London. That “should leave the currency quite sensitive to incoming data releases.”

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

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