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Pound to Swiss Franc Rate Plummets as Sterling Investors Pile into Safe Havens

May 8, 2019 - Written by David Woodsmith

GBP/CHF REPORT MAY 8: Fresh Brexit hopes, combined with a lack of solid demand for safe haven currencies like the Swiss Franc, left the British Pound to Swiss Franc exchange rate surging last week. Since then though, the pair has recoiled from its highs as Brexit uncertainties return and hit the Pound, while investors looking to avoid risks buy the Swiss Franc.

The Pound was in a good position for gains last week, and this made it easy for GBP/CHF to surge from 1.3170 to 1.3393 throughout the week. The week’s closing level was more or less at the week’s 2019 high of 1.3395, which was also the pair’s best level in almost a year since May 2018.

Selling the pair from its best levels in profit-taking likely made this week’s recoil stronger, as GBP/CHF has already lost around half of last week’s gains and at the time of writing was trending closer to the level of 1.3241.

While the primary cause of this week’s losses so far has been UK political uncertainty and safe haven demand bolstering the Swiss Franc, the Franc has also found some extra support on the latest Swiss data.

Pound Sterling Exchange Rates Slump as Hopes for Brexit Breakthrough Fade and Concerns Rise of Talks Falling Through

For most of last week, investors bought the Pound as UK officials began to show more signs of optimism that the government would be able to reach some kind of agreement with the opposition Labour Party in cross-party Brexit negotiations.

However, much of those gains have already been shed this week as the perceived success of these negotiations has shifted since markets opened for the week.

UK Deputy Prime Minister David Lidington has confirmed that Britain will be taking part in May’s upcoming EU elections, confirming that the government does not expect to be able to reach a Brexit agreement before then.

On top of this, fresh reports on Wednesday suggested that with the opposition Labour Party preparing to launch its EU elections manifesto the cross-party talks are on the brink of collapse. According to Robert Peston, ITV’s politics editor:

‘Labour’s negotiations on a Brexit pact with the Government may well be pronounced dead today - partly because the party is launching its EU elections manifesto tomorrow and would presumably need to say something about a possible pact other than “don’t know”.’

SWiss Franc Exchange Rates Benefit from Rising Market Demand for Safe Havens

A combination of domestic and global factors bolstered demand for the safe haven Swiss Franc today, helping it to easily regain some of last week’s losses versus the Pound.

This morning saw the publication of Switzerland’s April unemployment rate report.

While the key rate was forecast to improve from 2.5% to 2.3%, it only improved to 2.4%. Despite this, the report was overall positive for Switzerland’s economy.

It made it easier for the Swiss Franc to benefit from the latest rise in safe haven demand, which has been the primary cause of Franc strength today.

According to a fresh report from Reuters today, China has backtracked on many of the negotiated terms in ongoing US-China trade talks.

It threw a spanner in the works of hopes for a trade deal to be completed soon, and worsened concerns that a full blown trade war could begin again.

This made investors hesitant to take risks by buying trade-correlated currencies. Currencies that are perceived as safe in times of market uncertainty, like the Swiss Franc, benefitted instead.

While more US-China talks are expected in the coming days, analysts have become concerned that it will be difficult to recover from here.

GBP/CHF Exchange Rate Forecast: Political and Trade Developments in Focus

Amid a lack of notable Switzerland data due for the rest of the week, and Britain’s upcoming data unlikely to be influential unless it impacts the Brexit outlook in some notable way, Pound to Swiss Franc exchange rate investors will react to political news instead.

If speculation that cross-party Brexit talks will collapse turn out to be true, the Pound could see further losses in the coming days.

This would only made investors even more hesitant to take risks, and the Swiss Franc would be even more appealing.

US-China trade negotiations will see another round before the end of the week, but unless there are optimistic developments that douse some of this week’s trade concerns, safe haven currencies like the Franc will see further strength.
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