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GBP to CHF Exchange Rate Sheds July Gains as UK Growth Paints Dire Outlook

July 14, 2020 - Written by Frank Davies

A combination of poor UK data and market safe haven demand left the British Pound to Swiss Franc (GBP/CHF) exchange rate plummeting today. Since markets opened this week, the pair has been trending lower as the Pound’s rebound attempt unravels. However, the pair may have fallen even further if not for the market’s mixed appetite for safe haven correlated currencies like the Swiss Franc.

Brexit and UK stimulus hopes lifted GBP/CHF last week. The pair opened the week at the level of 1.1801, and spent most of the week trending higher. GBP/CHF ultimately closed the week at the level of 1.1880. This was just below the week’s best level of 1.1909, which was also the best level for the pair since mid-June.

This week though, GBP/CHF has plunged. GBP/CHF has already shed all of last week’s gains and then some, and is currently trending near a low of 1.1736. This is the worst level for the pair since the beginning of the month.

GBP Exchange Rates Plunge as UK Growth Outlook Appears Dire

Investors had been buying the Pound back from its lowest levels in the past few weeks, since the beginning of July. Sterling’s recovery attempt was further bolstered by Brexit hopes and UK fiscal stimulus news.

However, the Pound’s appeal has not lasted this week. In fact, the latest UK data has only given investors reason to sell the Pound back from its highs again.

Today saw the publication of a slew of UK ecostats, including trade, production and growth results.

While some of the data was decent, the growth rate stats in particular showed a growth figures far below what analysts had been forecasting.

Britain’s May growth rate was expected to come in at 5.5% month-on-month, but instead only rose to about 1.8%. Far from the rebound in growth many had been expecting, it indicated that Britain’s economic recovery may not be the v-shape many had hoped for.

Some analysts said that it may take years before Britain’s economic activity returns to normal. According to Dr Kemar Whyte, Senior Economist at NIESR:

‘The loosening of Covid-19 restrictions has provided an impetus to kickstart the UK economy. However, the measures unveiled by the Chancellor at the Summer Statement are a poorly timed change of tack and could trigger a sharp rise in unemployment, and possibly lead to permanent long-term damage to the economy.’

CHF Exchange Rates Climbing despite Dovish Swiss National Bank

The Swiss Franc is a currency often correlated to market appetite for safe haven currencies. As a traditional safe haven, CHF often gains in times of broad market uncertainty.

As a result of this and weakness in other safe haven currencies like the US Dollar, the Swiss Franc has seen fairly resilient demand over the past few weeks.

It comes as the global coronavirus situation worsens again. Surging cases in the US, as well as signs that the pandemic is hitting some economies worse than expected, has led to higher safe haven demand.

This is keeping the Swiss Franc appealing, even amid today’s dovish comments from the Swiss National Bank (SNB).

SNB Chairman Thomas Jordan said today that the bank would continue to use ultra-loose monetary policy. In fact, the bank even reminded markets that it would be willing to intervene in currency markets as part of policy if need be. Jordan said:

‘Even though we still have scope for further interest-rate cuts, the fact remains that one cannot lower interest rates indefinitely,

For this reason, interventions in the foreign exchange market, in which we buy foreign currencies and sell Swiss francs, also play a central role in our policy mix’

GBP/CHF Exchange Rate Forecast: Sterling May Struggle to Recover Unless Safe Haven Demand Fades

With this week’s most influential UK data falling short of expectations, upcoming UK data due for publication in the coming sessions may not be enough to boost demand for the British currency.

Tomorrow will see the publication of Britain’s June inflation rate results. This will be followed on Thursday by UK job market data.

The Bank of England (BoE) has been expressing concern about Britain’s job market. If the data beats forecasts, it could soften job market fears which may offer the Pound a little support.

However, without this the Pound’s only real chance to advance against the Franc would be if market safe haven demand weakened.

The Swiss Franc is benefitting from safe haven demand lately, but if global coronavirus hopes rise again and markets become more optimistic in the global recovery outlook, safe havens could weaken.

A rise in risk-sentiment would be one of the best chances the Pound to Swiss Franc exchange rate has of rising.
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