Buy Francs, Sell the Pound: HSBC

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Strategists at HSBC say the Swiss Franc is due a comeback against the Pound which will continue to be weighed down by expectations for near-term interest rate cuts.

“We now express our GBP bearishness against the CHF, a currency which we feel has struggled excessively so far this year and where the bears now look weary,” says Daragh Maher, Head of FX Strategy for the U.S. at HSBC.

HSBC’s strategists say sticky services inflation and wage growth in the UK give the Bank of England reason to remain cautious, but recent rhetoric “still points to a near-term rate cut”.

“The May BoE meeting could be an important stage-setter for a possible June easing,” says Maher.

Market odds for a June rate cut rose to about 50/50 last week following a speech by Deputy Bank of Governor Dave Ramsden, where he said he believed inflation was now set to undershoot the Bank’s previous forecasts.

HSBC says there is also scope for more cuts to be delivered by year-end than is currently priced into the market.

Regarding the Franc, “In our view, the CHF’s resilience is likely due to geopolitical tensions and with these uncertainties lingering, we think that the CHF can stay supported on its ‘safe haven’ status,” says Maher.

HSBC opens a trade idea to sell Pound-Franc at 1.1350, targeting a move to 1.1000, a level last seen on February 07.