Over the past seven days the Pound Sterling to Swiss Franc (GBP/CHF) exchange rate was trending within the range of 1.5208 to 1.5472.
The Swiss France has seen significant volatility of late in response to fluctuating gold prices. In the wake of the horrific attacks in Paris, safe-haven demand saw gold prices spike. This aided demand for the ‘Swissie’ (CHF). However, the looming prospect of a Federal Reserve benchmark interest rate hike, the first in over a decade, continues to weigh on gold prices. The resultant Swiss Franc depreciation was welcomed by the Swiss National Bank (SNB), however, given fears that overvaluation will have a significant drag on economic growth.
Meanwhile, the British asset has generally appreciated versus the Franc over the past week. This was mostly the result of Franc weakness rather than Sterling strength given that the British data docket was comparatively sparse. With that being said, however, an unexpected drop in British joblessness and an equally unexpected rise in Core Inflation aided the Sterling uptrend. Although the Bank of England (BoE) recently projected that inflation would remain well below target throughout 2016, the prospect of Federal Reserve tightening and European Central Bank (ECB) easing could see the BoE hike rates irrespective of weak consumer prices.
During Wednesday’s European session the Pound Sterling to Swiss Franc (GBP/CHF) conversion rate was trending within a limited range.
On Wednesday the Swiss Franc was trending statically versus all but the common currency. This is despite a huge drop in the ZEW Economic Sentiment Survey which declined from 18.3 to 0.0 in November. The low level of economic sentiment can be linked to fears that European Central Bank policy easing in December will cause the Franc to surge in value. Overvaluation has already caused the Swiss National Bank (SNB) to reduce growth forecasts since the shock removal of the Euro-cap at the turn of the year. Even a significant drop in the value of gold wasn’t enough to provoke a Swiss Franc depreciation. This was mostly due to quiet trade as investors await the forthcoming Federal Open Market Committee (FOMC) meeting minutes from the most recent policy decision.
The British Pound, meanwhile, was also trending statically versus its major peers amid subdued market trade. A slight lean towards appreciation can be linked to a speech from Bank of England (BoE) Deputy Governor Ben Broadbent. The Deputy Governor suggested that traders should not put too much store in the bank’s inflationary projections given that changes can occur rapidly amid volatile market conditions.
The Pound Sterling to Swiss Franc (GBP/CHF) exchange rate dropped to a low of 1.5401 during Wednesday’s European session.
Looking ahead, Thursday is likely to see ‘Swissie’ volatility with trade data and a speech from SNB official Adrea Meachler due. Looking much further ahead, however, many traders fear that the Franc will be hugely overvalued following the ECB December policy meeting. Should the ECB opt to expand monetary stimulus the Franc will surge and balance-sheet expansion will accelerate. This could have a hugely detrimental impact on economic growth and will call into question the SNB’s available tools to combat the inevitable appreciation.
For those invested in the British asset, Thursday could see GBP volatility with Retail Sales data due for publication. However, Sterling movement is most likely to be dictated by market reaction to the FOMC minutes. A hawkish tone in the Fed minutes may provide rate hawks fodder for predictions of a sooner-than-anticipated BoE rate hike.
The Pound Sterling to Swiss Franc (GBP/CHF) exchange rate climbed to a high of 1.5458 during Wednesday’s European session.