Pound Falls Versus Swiss Franc (GBP/CHF) after UK Inflation Figures Dip Below Expectations

February 17, 2015 - Written by James Fuller

STORY LINK Pound Falls Versus Swiss Franc (GBP/CHF) after UK Inflation Figures Dip Below Expectations

The Pound slipped against the Swiss Franc on Tuesday after the UK inflation figure fell to its lowest level since records began. The UK Consumer Price Index declined from 0.5% to 0.3%, defying expectations of a softer drop to 0.4%. Economist Paul Hollingsworth commented: ‘Although we have probably seen the full impact of lower oil prices on petrol prices, we have almost certainly not seen the full effect trickle down to other goods... With little sign that low inflation is becoming entrenched, though, the UK’s period of deflation should be of the ‘good’ sort.’

UK Chancellor to the Exchequer George Osborne also weighed in, tweeting: ‘Today we see lowest CPI inflation ever. This is a milestone for the British economy and good news for families with budgets stretching further.’ Wednesday could be another interesting day for Pound movement when the Bank of England releases its meeting minutes. Although the February report isn’t expected to offer significant amounts of new information, it will detail how many policymakers voted to keep rates stable. The second half of 2014 saw two of the nine policymakers voting for immediate increases in borrowing costs in four consecutive meetings. However, as inflation began to fall, the central bank adopted a more dovish tone when it came to monetary policy. Thursday will see the release of UK CBI Selling Trends and Trends Total Orders figures which could have an impact on Pound trading.

Meanwhile, the Swiss Franc has been climbing higher since the Swiss National Bank announced it was removing its cap with the Euro. However, the surging ‘Swissie’ has had extreme effects on the market. Now, Poland’s banking sector is claiming that the there is much less activity in acquisitions and mergers as a result of a stronger Swiss Franc. Representative of Santander’s Polish branch Mateusz Morawiecki commented: ‘The market wants to see what will happen in one, two, or three months time. Management discussions about the consolidation are frozen because of the Franc... I’m talking about the whole market.’

Furthermore, with political tensions heightening between Russia and Ukraine, Egypt and Libya, investors are on the lookout for potential safe-haven assets which could protect their funds. With the ‘Swissie’ losing some of its reliability as a safe-haven currency since the Euro tie was removed, it’s possible investors will place their trust in other places. Any SNB statements this week could affect the Swiss currency.

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