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GBP to CHF Exchange Rate Tumbles as Coronavirus Lockdowns Boost Safe Haven Franc

January 5, 2021 - Written by Frank Davies

Fresh lockdowns to dampen the spread of the coronavirus pandemic have hit the British Pound to Swiss Franc (GBP/CHF) exchange rate this week so far. As the pandemic continues to hit many major economies hard and has seen surges in infections over the past month, markets are becoming anxious about lasting impact on the global economy again. This has caused some resilience in market demand for safe haven currencies, which is keeping the Swiss Franc buoyed.

GBP/CHF advanced on Brexit deal relief last week, and ultimately closed the week much higher at the level of 1.2172.

This was just below the week’s GBP/CHF high of 1.2218, which was also the best level for the pair in half a year, since June 2020.

Since markets opened this week though, GBP/CHF has been tumbling again. At the time of writing, GBP/CHF has lost most of last week’s gains and is trending near the level of 1.1945.

GBP Exchange Rates Hit by New UK Coronavirus Lockdown

While last week’s Brexit deal implementation removed a significant downside risk from the Pound outlook, Britain’s coronavirus situation has been worsening and this has left the Pound unappealing.

As a more infectious strain of the coronavirus Covid19 spreads across Britain, the UK government announced yesterday that the nation would return to full lockdown.

In a lockdown that is expected to last through January and potentially February as well, UK Prime Minister Boris Johnson’s announcement indicated it would be the strictest lockdown England has seen since the first lockdown in March 2020.

The UK Treasury announced fresh support for UK businesses amid the pandemic today. However, many economists and analysts were quick to say that the measures would not be enough for small businesses and suppliers.

According to Mike Cherry, Chairman at the Federation of Small Businesses (FSB):

‘These funds come after a disappointing festive period and are followed by a last minute lockdown and do not go far enough to match the scale of the crisis that small firms are facing.

There remain too many groups who need more support to weather this storm such as the newly self-employed, those in supply chains and company directors.’

For the Pound, the switch in focus from Brexit back to the coronavirus has been a shock. Marshall Gittler at BDSwiss Group said:

‘The successful conclusion of the Brexit talks offered just a momentary breather with the pound back into the dumps after Johnson ordered a third economically disastrous national lockdown for England,’

CHF Exchange Rates Benefit from Safe Haven Demand but Switzerland Outlook Contains Uncertainty

The Swiss Franc is a safe haven currency. It is often more appealing in times of global market uncertainty.

While it has been weaker in recent weeks due to expectations for a global economic recovery from the coronavirus pandemic, surges in the virus in major economies have kept investors on their toes as well.

However, while the Swiss Franc has been benefitting from lingering safe haven demand, Switzerland’s domestic outlook contains some notable uncertainties. These are likely limiting the Franc’s potential for further gains.

Today’s Swiss inflation rate results from December fell short of expectations, contracting at –0.8% year-on-year.

On top of this, concerns are rising about Switzerland’s handling of the coronavirus pandemic. The more infectious strains of the virus discovered in Britain and South Africa have been confirmed in Switzerland as well.

According to Geneva’s Health Department (DSES):

‘It is very likely that there is community circulation of this strain in our canton

In order to contain the transmission of this new strain within the population, the Geneva health authorities are intensifying and extending the quarantine measures. They set up proactive screening of patients with this new variant’

GBP/CHF Exchange Rate Forecast: Recovery Possible if Vaccine Optimism Rises

Looking ahead, the Pound’s selloff could run out of steam if the UK outlook begins to improve, or if UK data impresses investors.

With a UK lockdown having already been confirmed, markets will continue to sell Sterling until the back news has been priced in.

However, Brexit deal relief means there is upside potential in the Pound outlook as well.

Tomorrow will see the publication of Britain’s final December services PMI. This will give investors a better idea of how Britain’s economy is weathering the coronavirus pandemic.

If it beats expectations, the Pound could recover more easily.

Thursday’s Swiss retail sales results could influence the Swiss Franc’s movement.

Of course, shifts in risk sentiment, such as if vaccine rollouts pick up speed, could lead to lower safe haven demand which could also weigh on the Franc and make it easier for the Pound to Swiss Franc exchange rate to recover.
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