Over the last week the GBP/CHF exchange rate has seen a decided decline as the Swiss Franc has strengthened on a fresh wave of market risk aversion, triggered by evidence of continued slowdown in China.
While the Swiss Consumer Price Index failed to produce the forecast uptick in inflation, holding steady at -1.4%, the GBP/CHF pairing was given further strength by the release of an improved UK Industrial Production figure. However, on Thursday, a not-disappointing showing on Switzerland’s Unemployment Rate helped to bolster the Franc as the Pound was set on a downtrend by the latest Bank of England (BoE) meeting minutes. Although the central bank opted to leave interest rates unchanged, a move that was not unexpected, traders did not react favourably to the generally dovish tone of policymakers. With the odds of an imminent rate rise appearing to recede further, the GBP/CHF exchange rate soon began to lose ground.
A poor showing on the UK’s Visible Trade Balance also dealt a blow to the Pound, as the national deficit was revealed to have been wider in August than pundits had anticipated. With domestic Construction Output also contracting the impression was not positive for the continued economic recovery of the nation, prompting a further weakening of sentiment towards Sterling.
This week the Franc has been bolstered by a solid printing on domestic Producer and Import Prices, with the month-on-month figure showing a definite improvement. However, the greatest boost to the safe-haven currency has been the release of softened Chinese figures. After Chinese Imports were shown to have contracted far more sharply than anticipated, by -20.4%, Wednesday’s Consumer Price Index slipped to 1.6% to compound concerns further. With inflation now at its lowest level in China since 2009 and the onset of the financial crisis, markets have reacted with trepidation to this latest sign of persistent slowdown within the world’s second largest economy.
Although the GBP/CHF exchange rate had slumped to a monthly low of 1.4548 the pairing soon rallied as a result of the latest UK employment figures. While Jobless Claims failed to show the expected improvement, rising by 4,600 on the month, investor faith was encouraged by the ILO Unemployment Rate posting a surprise fall in the three months to August. The lowest level of domestic unemployment since 2008, this set the Pound on a bullish run against rivals that saw the GBP/CHF currency pair making marked gains.
As bets have resumed as to the possibility of the BoE being spurred into monetary tightening as a result of a rising Average Weekly Earnings figure Sterling may hold its current strong form throughout the rest of the week. Should markets continue to favour lower-risk assets such as the Franc over the coming days, however, the currency could experience a further rally, particularly if the Swiss Balance of Trade comes in with a widened surplus on Tuesday.