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GBP to CHF Exchange Rate Plummets to Monthly Low as Sterling’s Brexit Woes Return

October 8, 2019 - Written by David Woodsmith

Due to a combination of fresh no-deal Brexit fears and market safe haven demand, the British Pound to Swiss Franc (GBP/CHF) exchange rate slumped today. The Swiss Franc was able to easily capitalise on the Pound’s poor performance, but this was more due to global news and risk-sentiment than any domestic support for the Swiss currency.

Today’s GBP/CHF slump has meant the exchange rate has already shed last week’s modest gains. Last week saw GBP/CHF climb slightly from 1.2178 to 1.2280, and the pair was unable to hold its weekly high of 1.2391.

After mixed movement on Monday though, GBP/CHF quickly lost those gains and then some today.

At the time of writing on Tuesday afternoon, GBP/CHF was trending near a low of 1.2100, which was the pair’s worst level in a month. Unless investors find fresh reason to buy the Pound in the coming days, the pair may be in for further losses too.

GBP Exchange Rates Plummet as Hopes for Brexit Deal Fade

For much of last week, the Pound found support on speculation that UK Prime Minister Boris Johnson was getting closer to reaching a new Brexit deal with the EU.

Johnson’s new proposals for how to handle the controversial Irish backstop were met with some cautious optimism in UK Parliament and from some EU officials.

However, other EU officials, as well as negotiators, quickly criticised the plan’s lack of detail. French President Emmanuel Macron gave Johnson an ultimatum to rework the deal within a week.

Markets remained cautiously optimistic that a deal could be made, but those hopes seemingly suffered a serious blow today.

A fractious call between Johnson and German Chancellor reportedly left UK officials saying that reaching a deal was not likely.

Hopes for a deal quickly faded, and with another extension to Brexit, leading to months more uncertainty, increasingly seeming like the most market-friendly option, the Pound slumped.

According to Andy Scott, Associate Director at Financial Risk Advisor JCRA:

‘The drop in Sterling indicates that the small amount of optimism which existed for a deal by next week’s EU summit among some investors, has faded.

Today’s reports presumably mean the government will have to request an extension – to which the EU have said they will agree. An extension would allow for a general election and a new government to decide the next steps.’

CHF Exchange Rates Sturdy in Safe Haven Demand and Swiss Unemployment Remains Low

The Swiss Franc capitalised on the Pound’s no-deal Brexit jitters-inspired weakness today, as global and domestic factors left the Swiss currency highly appealing overall.

The Swiss Franc is a safe haven currency, and it remains highly appealing in times of market uncertainty due to the perceived stability of Switzerland’s economy.

As a result, today’s rise in political fears including Brexit uncertainties and US-China trade tensions have made the Franc appealing.

US-China trade tensions are perceived to have worsened again, amid speculation that high-level negotiations could end early due to internal doubts that much progress will be made.

Due to weakness in its rival the US Dollar (USD), which is also a popular safe haven currency, the Swiss Franc was especially strong.

Today’s Swiss unemployment rate report had little major impact on the currency’s movement, but as the unemployment rate remained low at 2.1% it did help to keep the Swiss Franc appealing to markets.

GBP/CHF Exchange Rate Forecast: Political and Central Bank Developments in Focus for Risk-Sentiment

With investors hesitant to take risks amid the latest Brexit, trade, and growth jitters, the safe haven Swiss Franc could continue to see strong demand in the coming days.

A lack of upcoming Swiss data means that the Franc’s movement will be driven more by shifts in global risk-sentiment and rival strength.

With the US Dollar’s (USD) weakness on Federal Reserve interest rate cut bets one of the primary causes of Swiss Franc strength, tomorrow’s key Federal Reserve meeting minutes report could be highly influential if it surprises investors.

For example, a more dovish tone from Fed officials would lead to further US Dollar weakness and safe haven demand, keeping the Swiss Franc appealing.

On the other hand, if the Fed manages to maintain a hawkish tone, the US Dollar could recover some appeal as a safe haven and the Franc would slide.

Pound investors, on the other hand, will react to any surprising Brexit developments as they await Thursday’s UK growth stats.

With markets also highly anticipating upcoming US-China trade negotiations, any news here could also influence the Pound to Swiss Franc exchange rate.
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