March 3, 2020 - Written by David Woodsmith
STORY LINK GBP to CHF Exchange Rate Near 4-Month-Worst as Safe Havens March Higher
Attempts from officials to offer reassurance over the coronavirus crisis have failed to impress financial markets today, and persisting safe haven demand kept the British Pound to Swiss Franc (GBP/CHF) exchange rate near its recent lows. The Pound outlook has been throttled by revived hard Brexit fears, as well as fresh concerns that Covid-19 could impact Britain’s economic activity. Meanwhile, strong Swiss data is keeping the Swiss Franc climbing from strength to strength.
Brexit jitters and safe haven demand left GBP/CHF tumbling last week, as the pair fell from 1.2675 to 1.2373 throughout the week.
Sterling’s weakness persists and the safe haven Franc remains appealing, keeping GBP/CHF falling even lower this week so far. GBP/CHF tumbled yesterday and hit a low of 1.2199 overnight, which was the worst level for the pair in four months – since October 2019.
At the time of writing, GBP/CHF has been unable to rebound much from these lows and the pair trends close to the level of 1.2248.
GBP Exchange Rates Kept Pressured amid Coronavirus and Bank of England Speculation
The Pound has seen broad based losses against many major currencies over the past week.
Last week, Sterling was dominated by revived fears that Britain could be headed for a hard Brexit, and this week coronavirus fears have been weakening the Pound as well.
As fears rose that the coronavirus Covid-19 could spread in Britain, bets have risen that the Bank of England (BoE)
will be pressured into cutting UK interest rates in the coming months.
According to Morten Lund, Senior FX Strategist at Nordea:
‘There’s increasing pressure on the Bank of England to shift policy in March. We don’t know how the new governor will react to all that,
I wouldn’t want to be long Sterling at the moment. The risk is on the downside both in terms of the EU trade talks and coronavirus.’
While the Pound did rebound slightly from its lowest levels today, this was partially due to investors buying the currency from its cheapest levels in profit-taking.
Sterling also found a little support from today’s comments from outgoing BoE Governor Mark Carney. Carney showed no significant shift in tone and said he believed the impact of Covid-19 would be temporary.
The Pound also found some brief support from market hopes that global leaders would attempt to cool concerns about the outbreak. However, the statement from the G7 was ultimately seen as a disappointment in markets.
CHF Exchange Rates Continue to Benefit from Safe Haven Demand as G7 Statement Disappoints
Earlier today, markets had speculated that there could be something of a recovery if the G7 announced a coordinated effort to stimulate and protect the global economy from the spread of coronavirus Covid-19.
However, the statement from G7 finance ministers and central bankers came and went without impressing investors. According to Jennifer McKeown from Capital Economics:
‘This is a disappointment compared to previous hopes of an immediate and coordinated fiscal package and interest rate cuts, although such hopes had already been dampened by information leaked from “G7 officials” early this morning.’
As a result of concerns that enough could be done to prevent economic damage from the coronavirus, investors continued to find appeal in safe haven currencies like Swiss Franc.
Not only is the Swiss Franc popular in times of global uncertainty like other safe havens, it is currently appealing compared to other safe havens due to strength in recent Swiss data.
Yesterday’s Switzerland manufacturing PMI came in with a smaller contraction than expected, and today’s Swiss Q4 growth rate results were stronger than forecast.
Switzerland grew 0.3% quarter-on-quarter in Q4 2019, rising to 1.5% year-on-year rather than the expected 1.3%.
According to Charlotte de Montpellier, Switzerland Economist at ING:
‘Decent growth in the Swiss economy in the last quarter of last year coupled with rising economic indicators pointed to a dynamic 2020. But the coronavirus outbreak is sure to complicate things’
GBP/CHF Exchange Rate Forecast: Coronavirus and Risk-Sentiment Remain the Focus
Unless the Covid-19 situation sees a surprise shift in developments in the coming days, the Swiss Franc isn’t likely to suddenly lose its safe haven appeal.
The Pound to Swiss Franc exchange rate could remain under heavy pressure as coronavirus and Brexit jitters weigh on the Pound, while the Swiss Franc continues to be buoyed by safe haven demand and strong Swiss data.
Still, GBP/CHF could see slightly stronger demand in the coming sessions if Switzerland data takes a turn for the worst.
Tomorrow will see the publication of Swiss inflation results, and if the data disappoints investors it could dampen the Franc’s appeal.
UK services PMI data will be published tomorrow as well, but unless the data is notably surprising it may be brushed over by Pound to Swiss Franc exchange rate investors amid focus on Covid-19 and Brexit developments.
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TAGS: Pound Swiss Franc Forecasts