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Pound Swiss Franc (GBP/CHF) Exchange Rate Under Pressure as Fresh Covid-19 Restrictions Loom

September 25, 2020 - Written by Frank Davies

Rise in Covid-19 Anxiety Pushes Pound Swiss Franc (GBP/CHF) Exchange Rate Lower

A fresh surge in Covid-19 anxiety and safe-haven demand saw the Pound Sterling to Swiss Franc (GBP/CHF) exchange rate slump sharply on Monday.

With a number of economies around the world appearing set to end into fresh lockdown measures in response to a second wave of infections demand for the Swiss Franc picked up.

The safe-haven asset benefitted from fears that the global economic recovery is likely to stall in response to renewed restrictions, creating the potential for a renewed slowdown in growth.

As investors awaited the UK government’s decision on what actions to take in response to the current sharp growth in Covid-19 cases the mood towards the Pound largely soured, meanwhile.

Although the second quarter Swiss current account surplus proved smaller than forecast this was not enough to boost the GBP/CHF exchange rate.

GBP/CHF Exchange Rate Braces for Slowdown in UK PMIs

Once the extent of the fresh UK restrictions become clear this could see the Pound shedding further ground against its rivals.

As long as the government follows through with more severe restrictions the risk of a deeper loss of economic momentum may weigh heavily on the GBP/CHF exchange rate.

If Boris Johnson opts to stop short of imposing a full national lockdown, though, a modest sense of relief could see the Pound recover some of its losses in the near term.

Wednesday’s release of the latest UK manufacturing and services PMIs may add to the bearish outlook of GBP exchange rates, meanwhile.

With forecasts pointing towards both PMIs softening on the month in September, even while staying in expansion territory, worries over the economic outlook could easily pick up.

Any loss of momentum within either the manufacturing or service sector may leave the Pound exposed to selling pressure.

As the economy looks set to face further negative headwinds in the coming months any existing signs of weakness could drag the GBP/CHF exchange rate lower.

Swiss Franc Vulnerable to Signs of Swiss National Bank Dovishness

Elevated levels of market risk aversion may continue to buoy the Swiss Franc in the coming days, with investors unlikely to return to higher-yielding assets in the near term.

However, the Franc could prove vulnerable as investors brace for the Swiss National Bank (SNB) interest rate decision on Thursday.

Although no change in interest rates is expected at this stage the announcement could still weigh on the Franc if policymakers maintain a dovish outlook.

With interest rates already sitting in negative territory at -0.75% the prospect of any further easing action from the SNB may drive the Swiss Franc down.

Any comments from policymakers on the relative strength of the Franc could also provoke volatility for the GBP/CHF exchange rate.
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