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Pound slips against dollar as UK takeover activity declines

British Pound and U.S. dollar banknotes
The dollar strengthened against the pound during the session after unexpectedly soft services data boosted expectations for a halt at the Federal Reserve’s meeting next week. Photo: Dado Ruvic/Reuters (Dado Ruvic / reuters)

The pound (GBPUSD=X) lost ground against the dollar on Tuesday, falling more than 0.2% to $1.24 on the day, as the number of takeovers involving British firms declined in the first quarter.

The US greenback strengthened during the session after unexpectedly soft services data boosted expectations for a halt at the Federal Reserve’s meeting next week.

Sterling did, however, manage to climb 0.1% against the euro (GBPEUR=X), which was worth €1.16 at the time of writing.

Gilts were also up slightly on Tuesday thanks to gains on German bunds. This followed a European Central Bank (ECB) survey which revealed that consumer expectations for euro-zone inflation decreased significantly.

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Yields on 10-year UK gilts fell three basis points, while two-year bonds dropped two points.

“Whilst in part a response to movements elsewhere, UK specific developments also played a role, with concerns continuing to bubble along around the impact of higher interest rates on mortgage availability and by extension the UK housing market,” Simon Harvey, Head of FX Analysis at Monex Europe, said.

It came as the Office for National Statistics (ONS) revealed that foreign businesses spent £12.7bn acquiring UK firms between the months of January and March, £4.1bn less than the same time a year ago.

But the figure still came in at £6.9bn more than the previous quarter ending in December, when merger and acquisition activity declined.

The total combined number of monthly mergers and acquisitions - both UK companies acquiring foreign companies and vice versa – was lower at the start of 2023 compared with last year.

There were 141 transactions in January, 100 in February, and 114 in March, whereas there were more than 150 transactions in each month throughout 2022, the ONS said.

Read more: FTSE 100 down as Europe wakes up to Kakhovka dam blast in Ukraine

The total value of outward M&A (UK companies acquiring foreign companies) in Q1 this year was £2.9bn, £7.2bn lower than in Q4 last year (£10.1 billion) and £0.2bn lower than Q1 2022 (£3.1bn).

The ONS cited political uncertainty, with a reduction in appetite affected by Russia’s war in Ukraine, as well as ongoing economic uncertainty.

Just last month, Microsoft (MSFT) had a $68.7bn (£55bn) takeover of gaming company Activision Blizzard was blocked by the UK competition watchdog. The deal would have been one of the biggest deals in the tech sector.

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