By Chiara Albanese and Katie Martin
Sterling has pushed higher Monday amid signs that Vodafone Group PLC (VOD) is close to inking an agreement to sell its stake in Verizon Wireless--a deal that could involve bringing some $60 billion of cash back into the U.K., but analysts say the currency impact may soon fade away.
The Vodafone board approved the $130 billion deal in principle over the weekend, according to a person familiar with the situation, though the agreement hasn't been formerly finalized. Roughly half of the price-tag total is expected to be paid in cash, and the other in stock.
While this isn't the only reason for a 0.6% rise in sterling against the dollar Monday, compared with levels late in New York Friday, it has helped to pump the pound to its highest point against the euro since late June.
"There is no doubt this deal is being talked about as a reason for this and further strength in sterling," said Kit Juckes, a macro strategist at Societe Generale in London.
Like several other market-watchers, however, Mr. Juckes said that much depends on how any sterling is shifted to the U.K., and how much remains in the U.S. for other purposes. "The impact on depends on what Vodafone do with the money of course. I'm not sure that's clear yet," he said.
The size of the potential cash flow is significant--overall daily flows in sterling against the dollar average out at around $91 billion a day, according to data from the Bank of England.
Even smaller transactions often generate knee-jerk currency-market reactions. "Recent studies we have done on the impact of MA activity suggest that there is an impact on currencies markets when a deal is announced, regardless of the value of the deal," said Ian Stannard, a currencies analyst at Morgan Stanley in London.
Still, given that flows are likely to be staggered or hedged, or both, and may trickle through over several months, few sterling-watchers see this as a long-term support for the currency.
"The FX impact from the deal would depend on the Vodafone decision to retain the dollar cash and use it for future expansion, pay debt or transfer it to shareholders as a special dividend," said Valentin Marinov, a currencies analyst at Citigroup.
"At the moment we are guessing at everything. In any event, it's a question of how will big the sterling bid will be rather than if we will have a bid at all," said Daragh Maher, a currencies analyst at HSBC in London.
At 0915, sterling traded at $1.5585--its highest point in nearly a week--buoyed additionally by upbeat manufacturing data. The euro traded at GBP0.8480, marking the pound's strongest point against the euro since June 26.
--Costas Paris contributed to this article.
Write to Chiara Albanese at chiara.albanese@wsj.com and Katie Martin at katie.martin@wsj.com; @katie_martin_fx
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