David Bloom’s ‘Nutty’ Advice That Franc Is Good Brexit Barometer

  • Brexit may cause Swiss franc to surge, HSBC strategist says
  • Pound strengthens against all 16 major peers this week

Watch the Swiss franc if you want to gauge the risk of Britain leaving the European Union.

That’s the recommendation of David Bloom, head of global currency strategy at HSBC Holdings Plc, Britain’s largest bank, even though “that might sound a bit nutty.”

The franc, traditionally sought by investors in times of market stress, may rally if the U.K. votes to quit the bloc. While the Swiss National Bank has repeatedly threatened to intervene to stem an ascending franc, a jump fueled by Brexit might be tough to contain, he said. The franc has weakened 2.8 percent versus sterling in the past month.

“If the U.K. does decide to leave, then does the Swiss franc suddenly become a safe haven in Europe?” London-based Bloom said in an interview on Bloomberg Television’s “On the Move” with Guy Johnson. “Suddenly you’ve introduced new turmoil into the whole European political and financial structure” that may see the franc surge and “there is nothing the SNB can do about it.”

To watch Bloom’s interview, click here.

Bloom rightly predicted the euro would rebound after the ECB’s Dec. 3 meeting, and sees the currency ending 2016 at $1.20.

Pared Losses

The pound fell 0.2 percent to $1.4640 as of 5:17 p.m. London time on Friday, still up for a second week. On the year it has lost 0.7 percent.

Sterling climbed 0.3 percent to 76.07 pence per euro. It touched 75.65 pence on Wednesday, its strongest since Feb 3.

The Swiss franc strengthened 0.3 percent to 1.1046 to the euro -- up 0.6 percent this week after declining 0.8 percent over the previous five days.

To read how currency managers are combating Brexit risks, click here.

With the crucial EU vote less than a month away, Luca Simoncelli, a London-based money manager at Unigestion, is looking beyond the U.K.’s borders at the euro and the Swiss franc to hedge against market swings once the referendum outcome is known.

Pound, Polls

The pound advanced against all of its 16 major peers this week as polls signal the “remain” camp is pulling ahead. Yet, investors show no complacency: Sterling-dollar volatility rose to a six-year high Friday. Options to shield against a plunge by the pound on Brexit, compared with hedging against an increase, were at their most expensive in records going back to 2003.

“Anyone who is sensible” is buying protection against violent currency swings, HSBC’s Bloom said.

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