Foreign Currency Exchange Rate Outlook For Pound To Swiss Franc (GBP CHF)

January 22, 2013 - Written by James Fuller

STORY LINK Foreign Currency Exchange Rate Outlook For Pound To Swiss Franc (GBP CHF)

The fortunes of the Swiss Franc and the euro remain inextricably linked due to the continued maintenance of the EUR CHF floor at 1.2000 by Switzerland’s central bank. The Swiss National Bank introduced the minimum exchange rate between the Franc and the single currency during September 2011 following fears that the burgeoning eurozone debt crisis was about to escalate. The bad news emanating from the euro area at that time had caused a flurry of support for the safe haven Franc which Swiss policymakers considered a threat to their nation’s export industries.

For the first year that the EUR CHF floor was in place, Switzerland’s central bank had its work cut out to ensure the pair did not slip back into the 1.1900s – a result which it achieved by selling massive tranches of its Franc-denominated reserves on the open market. However, as fears of an imminent break-up of the eurozone receded last Autumn and the euro firmed, the safe-haven Franc gave up ground. This caused the ERU CHF exchange rate to break back above the 1.2100 level on 7th September 2012 for the first time in almost 6 months.

The early part of 2013 has brought sustained buying pressure for the euro thanks in part to comments from ECB President Mario Draghi which observed “a significant improvement in financial market conditions”. This had the dual effect of triggering strong support for the euro and weakening the Franc, sending EUR CHF to 1.2570 last Thursday – a level which represented the pair’s highest level since May 2011.

The GBP CHF exchange rate has hovered at, or just below, the 1.500 level since the start of last September. The selling pressure on the safe-haven Franc since this time has been more than cancelled-out by concerns regarding the UK economy’s anaemic growth levels and the consequent effect that these have on Britain’s ability to pay-off its national debt. Continued positive news from the euroland has the potential to further weaken the Franc, however, if Friday’s UK GDP data comes in at below the expected quarterly showing of -0.1%, then any Franc weakness could be more than cancelled out by a move against Sterling. Such a scenario could see the GBP CHF exchange rate tumble towards the band of resistance at 1.3700-1.3800 which it has tested on three separate occasions since the SNB began its extraordinary measures in the Autumn of 2011.

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