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Pound Swiss Franc Exchange Rate News: GBP/CHF Slumps to Two-Year Low as UK Government Working on the ‘Assumption of a No-deal Brexit’

July 29, 2019 - Written by John Cameron

Pound (GBP) Bludgeoned by No-deal Brexit Fears

The Pound (GBP) beat a hasty retreat against the Swiss Franc (CHF) and the majority of its other peers at the start of this week as markets reacted to the latest Brexit comments made by members of Boris Johnson’s new cabinet.

This was initially sparked by comments made by Michael Gove in the Sunday Times over the weekend in which the newly appointed chancellor of the Duchy of Lancaster, suggested that a ‘No deal is now a very real prospect’ and that the government is now ‘working on the assumption’ of such a scenario.

With Gove being responsible for preparing for a no-deal, his comments on Sunday were seen as significant.

Adding more fuel to the fire were comments from the new UK foreign secretary, Dominic Raab on Monday in which he blamed the EU for being inflexible, and reiterated that the UK would need to prepare for a no-deal Brexit.

Raab, said:

‘We want the deal ... Since the remarks that you have mentioned, we’ve had the series of fairly stubborn positions staked out by the EU. In fairness, you would expect that. It’s only been a few days into this administration.

‘But if they stick to that line - I think the thing that has changed is that they’re not willing to move at all, and they have reiterated that - then we must be prepared to give the country the finality it needs by preparing both businesses, but also people more broadly, [for a no deal Brexit].’

However, with parliament still expected to oppose a no-deal Brexit the government’s hands may be tied, something which could lead to Johnson calling an early general election in the coming weeks in order to re-jig the parliamentary arithmetic.

Analysts at US investment bank JP Morgan suggest:

‘Dialogue with the EU is ongoing but is likely to prove fruitless, and may segue into a general election and subsequent extension of Article 50 later this year. In the interim, the expectation is for him to push toward a “no deal” outcome as negotiations make little progress.’

Swiss Franc (CHF) Buoyed by Safe-Haven Demand

Meanwhile, the Swiss Franc (CHF) accelerated at the start of the week as demand for the safe-haven currency was buoyed ahead of the latest round of US-China trade talks.

US and China officials are set to hold their first face-to-face meeting since May this week in an effort to restart talks.

However analysts remain sceptical on the talks delivering any real progress, something which has seen investors extend their positions in safe-haven assets.

GBP/CHF Exchange Rate Forecast: Will a Dovish BoE Cast Sterling Even Lower?

Looking ahead, the Pound Swiss Franc (GBP/CHF) exchange rate likely face the prospect of further losses this week as the Bank of England (BoE) holds its latest policy meeting.

While no policy changes are expected from the BoE this week, we are likely to see Sterling retreat in light of the bank’s forward guidance, which is widely expected to be dovish in tone in response to signs of economic malaise in the UK as well as the rising prospect of a no-deal Brexit.

On top of this there will also be the UK’s latest PMI figures, which could also drag on the Pound if the contraction in the UK’s manufacturing sector accelerated in July as expected.

Meanwhile the focus for CHF investors this week will be on the publication of Switzerland’s latest CPI figures at the tail end of the session.

This could see the Swiss Franc move lower as a suspected contraction in inflation will likely put more pressure on the Swiss National Banks (SNB) to slash its already deeply negative interest rates even lower.

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