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Pound Swiss Franc (GBP/CHF) Exchange Rate Fails to Capitalise on Soaring UK Inflation

February 13, 2018 - Written by John Cameron

UK Inflation Fails to Support GBP/CHF Exchange Rate

The Pound Swiss Franc (GBP/CHF) exchange rate extended its fall on Tuesday, failing to capitalise on the UK’s soaring core inflation rate and the hype that ensued for a May rate hike.

Inflation in the UK printed at 3.0% year-on-year in January, consistent with the previous period but above the market forecast of 2.9%.

Beyond this, the core inflation reading (which excludes the prices of energy, food, alcohol and tobacco) jumped to 2.7% in January, smashing the previous period’s 2.5% and the market forecast of 2.6%.

This rise increasingly builds the case for a May rate hike from the Bank of England (BoE), with the central bank having repeatedly asserted that an earlier-than-expected rate hike would be highly dependent on inflation continuing to remain around six-year highs.

Dennis de Jong, Managing Director at UFX echoed this sentiment:

‘There is no breathing space for Mark Carney and the Bank of England who continue to battle with high inflation, though at least that figure has steadied and not risen further’.

Swiss Franc (CHF) Exchange Rates Supported by Volatile Stock Market

Swiss Franc (CHF) exchange rates proved extremely resilient to Sterling’s rise on Tuesday, finding ongoing support as markets continued to react to volatility within the stock market.

The Swiss Franc has seen its biggest rally since 2016, snowballing as investors sought safe-haven currencies in the wake of the giant stock market correction.

Whilst stocks appear to have begun to rally after the sharp drop last week, many investors remain cautious on fears that the markets could face ongoing turmoil.

In other news the CHF did see some limitation in the form of Switzerland’s latest consumer price index (CPI) readings which proved softer than expected.

According to Switzerland’s Federal Statistics Office, Swiss year-on-year inflation printed at 0.7% in January, down from the previous period’s 0.8% and below the forecast of 0.8%.

The month-on-month figure similarly disappointed, falling by -0.1%.

This poor reading underlines the understanding that the Swiss National Bank (SNB) will continue to lag on their unwinding of stimulus.

GBP/CHF Exchange Rate Forecast: Brexit Negotiations in the Spotlight

The Pound Swiss Franc’s (GBH/CHF) performance in the near-term will largely be dependent on two factors; the state of the stock market and demonstrable progress being made in Brexit negotiations.

In respect to the latter, markets are continually frustrated with a lack of advancement, with the UK and the EU still locking heads on issues such as the rights of EU citizens, and the UK being subject to new EU laws during the transition period.

If agreement is not quickly reached then trade talks (phase 3) could be delayed beyond March, an event that would leave UK and EU businesses in the dark for longer and continue to cause many to hold off on significant investment measures.

Beyond this, the BoE has insisted that an earlier-than-expected rate hike will also be reliant on progress being made in Brexit negotiations, making the ongoing deadlock a massive concern for the markets.

In the meantime, a stabilisation in the stock market could give the GBP/CHF exchange rate room to breathe as investors move away from safe-havens.
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