Over the past month, the Pound Sterling to Swiss Franc (GBP/CHF) exchange rate was trending within the range of 1.3827 – 1.4681.
Despite the fact that the Swiss National Bank (SNB) avoided cutting rates at the last policy meeting, speculation of further intervention weighed on demand for the ‘Swissie’ (CHF) in the early half of last month. The Franc, however, has gradually strengthened as Euro weakness overshadowed relatively poor domestic data publications and rate cut speculation. Even the sustained period of Swiss deflation hasn’t stopped the Franc appreciation. This has been the general trend over the past month, and so increasing speculation that the SNB intends to intervene to devalue the Franc seems justified. The Swiss asset even appreciated after mixed growth data which showed the economy contracted by -0.2% in the first quarter.
In his most recent speech, SNB Chairman Thomas Jordan stated that the bank believes that the ‘Swissie’ will weaken, but policymakers are prepared to adjust monetary policy in order to combat overvaluation if necessary. ‘The Franc is significantly overvalued and should therefore weaken over time,’ Thomas Jordan said in a discussion with readers of Schweiz am Sonntag. ‘In addition, we have emphasized we will become active in foreign exchange markets if required.’
At the beginning of this month the Franc continues trending higher as speculation of SNB policy easing has cooled with market focus on geopolitics elsewhere in Europe. Relatively positive data on Monday also aided the ‘Swissie’ appreciation. The SVME Purchasing Managers Index was forecast to tick a little lower from 47.9 to 47.8, but May’s actual result surprised by advancing to 49.4; significantly closer to the 50 mark which separates growth from contraction.
Looking ahead there will be several ecostats of varying significance to interest those invested in the Swiss Franc. Principally, however, traders will be looking towards the SNB interest rate decision on June 18
th
. Although most economists don’t expect a rate cut, should the Franc prove to be consistently overvalued the central bank may well choose to cut the repo rate. In addition to the rate decision; Retail Sales, Unemployment Rate, Producer Prices Index, ZEW Economic Sentiment, Trade Balance, UBS Consumption Indicator and the SVME Manufacturing PMI will all be of interest to those invested in the Swiss asset.