Sell Pound, Buy Swiss Franc With Target 1.10 As BoE To Cut June: HSBC

According to foreign exchange strategists at HSBC, an earlier-than-expected Bank of England (BoE) rate cut will undermine the Pound while the Swiss franc will attract defensive support from Middle East tensions.

The Pound to Franc (GBP/CHF) exchange rate hit 9-month high just below 1.15 in early April before sliding to lows below 1.12.

It has recovered to 1.1360 on gains in equities, but HSBC recommends selling around current levels with a target of 1.10.

HSBC notes that the UK inflation data has been slightly stronger than expected and that the Pound has been supported by doubts over a near-term BoE rate cut.

It does, however, note that bank officials have been significantly more confident over the inflation outlook.

In this context, HSBC , considers that the May BoE meeting will be potentially very important with the MPC setting the stage for June cut.

Given that markets are not expecting a June cut, the Pound would be vulnerable.

HSBC also considers that the Swiss franc will maintain its safe-haven status and gain support from geo-political tensions.

The bank also considers that the impact of March’s Swiss National Bank (SNB) rate cut should now fade and that the SNB is not likely to target a weaker Swiss currency to boost the competitive position.

Key Quotes:

We open a trade idea to sell GBP-CHF @ 1.1350, target @ 1.1000, stop @ 1.1520″

“GBP has been recently supported by a hawkish repricing of the BoE’s rate cut expectations.”

“Several BoE MPC members – such as Governor Bailey – also appear comfortable that the disinflation process remains on track.”

“This should open up some room for GBP to weaken in coming weeks.”

“Meanwhile, we look for the CHF to stay resilient on the back of geopolitical uncertainties.”

“Although the rates story has weighed on the currency over the past few weeks, we think this could be less of a further headwind as a dovish SNB has already been priced in by the market.”

“The latest reserves data suggest the SNB may have sold the CHF.”

“Rhetoric by SNB policymakers suggests that any such intervention could be moderate for now.”