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GBP CHF Exchange Rate Could Extend Downtrend on Rising Swiss Prices

April 12, 2017 - Written by Tim Boyer

The British Pound to Swiss Franc exchange rate trended more flatly on Thursday afternoon, falling back from the weekly highs seen earlier in the day. However, GBP/CHF still looked on track to end the week well above its opening levels.

Demand for the Swiss Franc improved slightly on Thursday as gold market prices hit a new weekly high. However, next week the Swiss Franc may be jittery on French political election concerns.

[Previously updated 12/04/2017]

Confidence in the Pound faltered somewhat in the wake of weaker UK labour market data, although its losses against the Swiss Franc were relatively limited.

Disappointing Wage Data Weighed on GBP Demand

Investors were discouraged to find that average weekly earnings had slowed in the three months to February, clocking in at 2.2%.

As wage growth fell below the corresponding inflation rate of 2.3% this indicated that real pay has started to be eroded, putting greater pressure on consumers.

Given that much of the UK economy’s recent strength has been the result of persistently high levels of consumer spending this development suggests that GDP is likely to soften further in coming months.

Stephen Clarke, economic analyst at the Resolution Foundation, noted:

‘Britain’s brief pay recovery has come to an end. Forty per cent of the workforce are experiencing shrinking pay packets according to the latest figures, in sectors ranging from accommodation to finance and the public sector. Many more will join them in the coming months as inflation continues to rise, with pay across the economy as a whole set to have fallen in the first three months of 2017.’

This disappointing showing also lessened the likelihood of the Bank of England (BoE) adopting a more hawkish view on interest rates in the near future, leaving the Pound with relatively limited support.

CHF Shored up by Safe-Haven Demand

Rising geopolitical tensions between the US and Russia have seen the Swiss Franc making strong gains this week, benefitting from an increased demand for safe-haven assets.

If the deadlock over the Syrian conflict continues then the Franc could remain on a bullish trend, in spite of the threat of market intervention from the Swiss National Bank (SNB).

The Franc struggled to gain particular traction against the Pound, however, as confidence in the outlook of the Swiss economy remained limited.

With the European Central Bank (ECB) looking set to maintain its current ultra-loose monetary policy for the foreseeable future the prospect of any SNB tightening remains limited.

GBP CHF Forecast: Rising Swiss Import Prices to Boost Franc

Demand for Sterling could weaken further if tonight’s RICS house price index shows that the domestic housing market slowed in March.

Falling housing prices could offer further evidence that sentiment within the economy is faltering, with consumers looking less likely to buy as inflation cuts into earnings.

The GBP CHF exchange rate could also come under pressure as a result of the latest Swiss producer and import prices figures.

If prices are found to have picked up on the month this could precede a similar uptick in the consumer price index, which would be a welcome development for the SNB.

On the other hand, a weaker showing here could help to Pound to find some support against the Franc.
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