GBP/CHF Exchange Rate Falls to Thirteen-Month Low on ‘Brexit’ Worries
Investors have been less inclined to view the Swiss economy with confidence over the past week after domestic data proved largely discouraging. Fourth quarter Swiss Industrial Production was found to have contracted further than expected from -2.7% to -4.5% as demand was hampered by the strength of the Franc.
Recent stock market volatility and persistent concerns about the health of the global economy have prompted a greater surge in safe-haven demand, with the Franc continuing to outpace the Euro due to its more insulated nature. As a result the relative weakness of the single currency has helped to dent the Swiss economy as consumers continue to favour the neighbouring Eurozone.
With the Pound weighed down by uncertainty over the outcome of June’s EU membership referendum the Pound Sterling to Swiss Franc exchange rate slumped to a thirteen-month low on Wednesday. However, as the January BBA Loans for House Purchase figure demonstrated a stronger-than-expected rise in lending the ailing currency began to recover some of its lost ground.
Speculation Grows over Odds of SNB Easing
Despite the second estimate of the UK’s fourth quarter GDP showing a downwards revision from 2.1% to 1.9% the GBP/CHF currency pair remained on an uptrend, as the Franc began to weaken. Although growth within the UK economy is expected to slow in response to ‘Brexit’ uncertainty, as businesses put off investment ahead of the vote, the Pound failed to particularly decline in response.
The Franc, meanwhile, was further softened by January’s Consumer Price Index as inflationary pressure within the country continued to decline. Disappointing forecasts of a minor uptick from -1.4% to -1.3%, the report instead showed inflation of -1.5%. This discouraging result encouraged speculation that the Swiss National Bank (SNB) could opt to loosen monetary policy further at its March policy meeting.
Given the likelihood of the European Central Bank (ECB) unveiling additional easing measures at its own policy meeting it seems increasingly likely that the central bank may have to resort to more extreme measures in response. With a potential currency war brewing the Franc has declined against rivals, pushing the GBP/CHF exchange rate higher as increased risk appetite equally dents the safe-haven currency.
Bullish Swiss Manufacturing PMI Shores up Franc
Following improved Net Consumer Credit and Mortgage Approvals results the Pound has been on less bearish form, with ‘Brexit’ volatility easing as traders settle in for the long run-up to the referendum. The outlook of the UK economy has remained decidedly mixed, however, as February’s Manufacturing PMI showed a far larger decline than pundits had anticipated. Slipping from 52.9 to 50.8 this did not appear to bode well for the domestic economy as downside risks are set to mount further in the coming months.
Stronger Swiss Retail Sales and Manufacturing PMI data has seen the Franc trend higher on Tuesday, as both defied expectations of contraction to post renewed growth. After stagnating in January the Swiss manufacturing sector expanded solidly to 51.6 in the last month, offering some reassurance that the domestic economy is not in such bad shape as previously feared.
Fresh volatility should be expected with Wednesday’s Swiss GDP figures, as growth is forecast to have slowed significantly on the year from 0.8% to 0.1%. As weaker domestic data is likely to increase the case for further SNB intervention the Franc can be expected to soften in response, with the GBP/CHF exchange rate looking to consolidate its recent gains.