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GBP to CHF Exchange Rate Pressured by Brexit Fears and Coronavirus Surges

December 8, 2020 - Written by John Cameron

Mixed speculation over the direction of UK-EU Brexit talks are keeping the British Pound to Swiss Franc (GBP/CHF) exchange rate under pressure this week. While some investors are more willing to take risks due to coronavirus vaccine hopes, the Swiss Franc is among the market’s most appealing safe havens due to Switzerland’s relatively optimistic outlook.

Swiss Franc resilience has combined with Brexit fears to keep GBP/CHF tumbling in recent weeks. Last week saw GBP/CHF open at the level of 1.2047, before falling and closing the week at the level of 1.1986.

This week’s movement has been even more bearish so far. Since markets opened yesterday, GBP/CHF has been tumbling lower.

Yesterday, GBP/CHF touched on a low of 1.1813 - the worst level for the pair in a month and a half since late October.

While GBP/CHF has recovered slightly from those lows, the pair still remains low in the region of 1.1855 at the time of writing.

GBP Exchange Rates Increasingly Volatile as No-Deal Brexit Threat Becomes More Realistic

After weeks of hopes that the UK and EU were getting closer to reaching a deal on Brexit, fears are rising that negotiations will run out of time.

In recent sessions, UK and EU officials have signalled that Wednesday could be the final day for a deal to be reached.

Fears of a no-deal Brexit if talks collapse this week are intensifying, leading to Pound losses this week. According to Jane Foley, Head of FX Strategy at Rabobank:

‘The fact that Johnson will travel to meet [European Commission President Ursula] von der Leyen later this week means that all is not lost with respect to a deal,

However, given that the issues of fisheries and a level playing field have been in the spotlight for so long, it may be a bit of a long shot to expect that they can suddenly find a new angle to compromise on.’

As no-deal Brexit fears persist and talks could collapse within days, today’s optimistic UK grocery sales data did little to boost Sterling.

The Pound found some support on news that the UK and EU had largely agreed to the implementation of the withdrawal agreement. As this includes the contentious issue of the Northern Ireland border it was seen as an optimistic sign for negotiations.

BBC Political Editor Laura Kuenssberg said:

‘UK and EU have agreed all issues on UK/NI protocol - in principle, confirms then UK will withdraw controversial clauses from Internal Market bill’

CHF Exchange Rates Remain Appealing as a Safe Haven Currency

While market safe haven demand has been weaker as global coronavirus recovery hopes rise, the Swiss Franc still remains fairly appealing.

As Switzerland’s economy is weathering the coronavirus pandemic relatively well, the Swiss Franc has become more appealing as a safe haven than rivals the US Dollar (USD) or Japanese Yen (JPY).

As there are some concerns about surges of coronavirus infections in major economies like the US, safe haven currencies are still somewhat appealing.

Lingering safe haven demand is boosting CHF as investors buy it over USD and JPY.

According to Analysts at MUFG:

‘Over the past week the CHF has outperformed alongside the EUR as broad-based USD weakness has accelerated. USD/CHF has broken below key support at the 0.9000-level, and there now little in the way of support until 0.8500-level. It creates scope for further CHF gains in the near-term.”

We believe it is premature to see a sustainable reversal lower for currency debasement trades especially if inflation picks up while loose monetary policy remains in place. The CHF has been one of the main beneficiaries of the currency debasement trade alongside the price of gold.’

GBP/CHF Exchange Rate Forecast: Could Brexit Outcome Become Clear This Week?

Wednesday could be the final day of Brexit negotiations, depending on how things unfold. Whatever becomes of the Brexit process is likely to dominate GBP/CHF movement.

For example, if UK and EU officials do reach an agreement on a Brexit deal over the coming day, the Pound could see a surging relief rally.

On the other hand, if there is no deal reached or if negotiations collapse, the Pound could plummet as no-deal Brexit fears would skyrocket.

In the even of a no-deal Brexit, markets would also be more eager to buy safe haven currencies like the Swiss Franc. This could lead to even sharper GBP/CHF losses.

Some notable UK data will be published on Thursday. These trade, production and growth stats are likely to be overshadowed by Brexit developments however.

The Swiss Franc, on the other hand, will likely continue to be driven by developments in market risk-sentiment. This leaves Brexit and market sentiment the big focuses for the Pound to Swiss Franc exchange rate.
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