As global markets have continued to generally stabilise over the last week, in spite of further evidence of economic contraction in China, the appeal of the safe-haven Swiss Franc has declined somewhat on the back of an increased atmosphere of risk appetite. This was certainly not helped on Monday by a raft of domestic data indicating that the Swiss economy is not immune to the pressures of the wider slowdown. Year-on-year Retail Sales for July did register some improvement, although not enough to emerge from the realm of contraction, while the nation’s Producer and Import Prices fell further into the red in the last month. As a result, the GBP/CHF exchange rate rose to a peak of 1.5005 before resuming a steady downtrend.
Tuesday’s UK Consumer Price Index proved substantially disappointing for Sterling, as domestic inflation in August was shown to have grown by 0% on the year. While this decline had been anticipated, the effect on trade was still noticeable, with the GBP/CHF conversion rate sinking to 1.4922 to cede back what gains it had made overnight. In line with the Bank of England (BoE) 12-month Inflation Forecast, this painted a grimmer picture of progression on the economic recovery of the UK and added to suggestions that the Monetary Policy Committee (MPC) will continue to hold off on an interest rate hike in the near-future.
This morning saw a marked improvement for the GBP/CHF pairing, however, on the strength of fresh UK unemployment data. Average Weekly Earnings unexpectedly increased, from 2.6% to 2.9% in the three months to July, as Employment Change also rose significantly, from -63,000 to 42,000. With the Unemployment Rate dropping to 5.5% investors were very much encouraged, piling back into the Pound on a sudden surge of optimism. As Sterling climbed across the board the GBP/CHF exchange rate reached a daily best of 1.5063.
Unfortunately for the Swiss Franc this raft of UK figures overshadowed the release of Switzerland’s September ZEW Economic Sentiment Index. Defying expectations to increase from 5.9 to 9.7 rather than declining, this release was ultimately not of strong enough calibre to counteract the bullishness of Sterling. However, as this reading was the highest the index has reported since early 2014, general optimism in the domestic economy appears to be on the rise, a development which is likely to benefit the Franc in the longer term.
Tomorrow’s Rate Decision from the Swiss National Bank (SNB) could stand to impact the GBP/CHF exchange rate and possibly return it to bearish territory if policymakers elect to make an unexpected move. While it seems unlikely that there will be any cut to rates at this juncture, particularly as the Fed is expected to hold steady and the European Central Bank (ECB) has made no change of its own, January’s shock decision by the SNB to remove the Euro/Franc means that traders still remain a little more wary of surprises from the Swiss.