Investors are shunning foreign-exchange markets because currency moves are proving difficult to predict as more countries roll out stimulus programs, according to David Bloom, head of currency strategy at HSBC Holdings Plc.
“There is no circumstance where we would prefer foreign exchange to any other asset class,” Bloom said at a seminar in London today. Foreign-exchange markets “are not transparent, understandable,” he said.
Demand for foreign exchange has been damped by the varying reactions of currencies to nations’ economy-boosting measures and the unwinding of the carry trade, in which investors borrow money in a country with relatively low interest rates and invest in markets offering higher returns, Bloom said.
Policies such as quantitative easing, when central banks buy government bonds to inject cash into the local economy, “mean totally different things” for currencies, he said.
HSBC is the fifth-biggest foreign-exchange trader, according to an annual survey by Euromoney Institutional Investor Plc.
The pound cannot be considered a safe-haven asset while the U.K. government is attempting the deepest spending cuts since World War II, the strategist said.
“Sterling is a problem,” Bloom said. The U.K. “has a deficit-reduction plan that is very difficult to achieve.”
The U.K. currency has strengthened 2.1 percent in the past year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. It fell 0.3 percent to 81.24 pence per euro at 5:30 p.m. London time. It will weaken to 86 pence per euro by the end of next year, according to the median of 45 estimates in a Bloomberg survey.