markets

Pound Has Limited Room to Gain From Takeda-Shire Deal

Takeda Agrees to Buy Shire in Cash, Share Deal

Sterling has limited scope to gain from Takeda Pharmaceutical Co.’s deal to buy the U.K.’s Shire Plc, given Brexit uncertainties and the falling odds of an interest-rate increase by the Bank of England, strategists say.

The 46-billion-pound ($62 billion) takeover -- the largest by a Japanese company -- could boost demand for sterling, although ambiguity over the deal structure and the currency composition of Shire’s balance sheet may mean any impact is short-lived, according to BNP Paribas SA and SEB AB.

“It is a super large deal,” said Richard Falkenhall, a strategist at SEB. “Such takeovers usually support the currency when announced but when the deal is settled, the effects are normally small.”

The pound, which rose as much as 0.3 percent to the day’s high of $1.3593 following headlines on the acquisition, reversed the move and weakened 0.4 percent on the day amid broad dollar strength to $1.3503. It dropped 0.1 percent to 88.04 pence per euro.

The acquisition news may only provide brief respite for the pound, which has slumped in recent weeks amid fading hopes of a U.K. interest-rate increase this week and ongoing disputes over a post-Brexit custom’s union with the European Union.

Money markets are pricing in only a 10 percent chance of the BOE raising rates, down from as high as 90 percent in March, after Britain’s economic performance fell short of expectations and as sterling-induced inflation pressures fade. With Shire’s balance sheet likely predominantly dollar-based, BNP sees the U.K. central bank as the main driver of the currency.

“The pound appears much more driven by BOE expectations these days, hence the general weakening trend,” Steven Saywell, senior mult-asset specialist at the French bank, said in emailed comments. “We are fairly negative on GBP,” forecasting euro-sterling at 90 pence by the end of the second quarter.

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