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GBP to CHF Exchange Rate Edges Higher Following Friday Plunge

April 30, 2018 - Written by Frank Davies

Last week’s underwhelming UK Gross Domestic Product (GDP) projections led to a broad Pound selloff, so the British Pound to Swiss Franc (GBP/CHF) exchange rate shed all of last week’s gains on Friday. While the pair rebounded slightly on Monday, Sterling lacked the drive to make a stronger recovery.

As the Swiss Franc continues to see broadly weak trade, GBP/CHF spent most of last week climbing. The pair rose from the opening level of 1.3647 to a weekly high of 1.3788 on Friday, but then plummeted and closed the week at the level of 1.3604. On Monday, GBP/CHF briefly touched on a three-week-low of 1.3570 but then rebounded and trended closer to 1.3622 at the time of writing.

GBP Recovery Limited as Bank of England (BoE) Interest Rate Hike Bets Weak

After weeks of speculation that the Bank of England (BoE) could hike UK interest rates in May, those bets appear to be largely unwinding since last Friday’s disappointing UK Gross Domestic Product (GDP) report.

The UK’s Q1 growth projections were forecast to weaken only slightly from Q4 2017, but instead fell well short of expectations in both major prints.

Britain’s quarter-on-quarter growth projection was forecast to slip slightly from 0.4% to 0.3%, but instead slowed to just 0.1%.

Meanwhile, the year-on-year figure was forecast to stay at 1.4% but the projection slipped to 1.2%.

With UK growth much lower than expected, analysts became concerned that Britain’s economy might not be sturdy enough to sustain tighter monetary policy from the Bank of England as soon as May after all.

According to Marios Hadjikyriacos, an analyst from XM:

‘The Bank now appears highly unlikely to hike in May, and if the probability for such action continues to drift towards 0 per cent in the coming days, then the Pound could remain under pressure,

As always, besides the BoE, the other key determinant for Sterling will be any updates on Brexit, where the next negotiating round will begin on Wednesday.’

With Brexit negotiations resuming this week, political news has also influenced some Sterling trade.

While the Pound dipped on Monday morning on reports that UK Home Secretary Amber Rudd had resigned, the currency performed more strongly in the afternoon after it was confirmed that Sajid Javid had taken her place.

Support for the British currency is still limited amid a lack of optimistic domestic data or political developments, but anticipation for upcoming UK data and Brexit negotiations is keeping the currency away from its worst levels.

CHF Remains Unappealing as KOF Leading Indicators Disappoint

The Swiss Franc’s recent weak trend has continued so far this week, with investors seeing little reason to buy the currency amid underwhelming ecostats.

Monday saw the publication of Switzerland’s KOF leading indicators report from April, which fell short of the forecast 105.5 and printed at just 105.3. The previous figure was revised lower too, from 106 to 105.1.

This disappointing data did little to dissuade the current bearish run on the Swiss Franc, which has continued as the Swiss National Bank (SNB) has insisted that it is not concerned about the currency’s value falling lower.

In fact, SNB Chairman Thomas Jordan stated that the weaker Franc could be a relief to Switzerland’s economy.

The Swiss National Bank’s persistent dovishness has left CHF so unappealing that it has not benefitted even from news that would typically boost ‘safe haven’ currencies.

GBP/CHF Forecast: Central Bank and Brexit Developments in Focus This Week

Much of the Pound’s recent losses have been due to falling Bank of England (BoE) interest rate hike bets, so essentially the Pound could rise again if BoE rate hike bets improve again.

However, it may take a lot for the UK economic outlook to improve significantly enough to boost BoE interest rate hike bets.

Britain’s April PMI results will be published this week, with manufacturing data due on Tuesday, construction on Wednesday and the key services print on Thursday.

As UK services make up most of Britain’s economic output this data could support BoE bets if it is particularly impressive.

On the other hand, disappointing PMI data could cause Sterling to see another week of losses even against a weak Swiss Franc.

Wednesday will see the publication of most of this week’s notable Switzerland data, with Q2 consumer confidence stats, March retail sales and April’s manufacturing PMI due to be published.

Of course, Thursday’s speech from Swiss National Bank (SNB) Chairman Thomas Jordan could keep the Franc under pressure if he continues to make dovish comments.
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