HSBC Says CHF Could Offer Brexit Protection

If Britons vote to support the U.K.’s exit from the European Union, the Swiss currency could be your savior if you’re looking for cover from the fallout.

Debate over whether the U.K. should cut formal ties with EU is in full-swing ahead of a June 23 referendum. Overall, polling indicates the race will be tight. Prime Minister David Cameron has been working to convince the British public to back the UK/EU paring.

“Brexit” would be a colossal event for Europe. We believe it would drive [the pound] weaker by 15%-20%, and would likely drag the [euro] lower with it,” said HSBC currency strategists led by David Bloom in research note published Tuesday.

“We believe the CHF is the best hedge against “Brexit” risk,” the strategists said. CHF refers to the Swiss franc, considered a safe-haven currency.

“There is little evidence that CHF has priced in much “Brexit” risk which means there is little risk premium to disappear. This asymmetry makes the CHF the best choice as a hedge,” the strategists said.

The pound has already suffered from uncertainty surrounding this summer’s vote result. The pound last month hit a seven-year low against the greenback, brief falling below $1.39 after London Mayor Boris Johnson said he’s backing efforts toward the U.K. leaving the EU.

The pound was under renewed pressure Tuesday after a poll by the Telegraph newspaper showed more respondents who backed leaving the EU would more motivated to participate in this summer’s vote than those who want to leave the UK../EU relationship intact.

The pound was driven lower Tuesday against most of its rivals. Sterling  was buying 1.3971 Swiss francs while it fetched 1.2751 euros. Against the dollar, it was off nearly 1% at $1.4153.

via MarketWatch

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza