Market reaction to the European Central Bank’s aggressive policy alterations has been significantly volatile. As a result, demand for safe-haven assets increased which caused the GBP/CHF exchange rate to soften.
Will the SNB Cut Interest Rates Further?
After the ECB cut all of its rates and expanded quantitative easing, the Euro dived. This caused the Swiss Franc to appreciate by over 1.0% against the common currency, prompting many to fear that the Swiss National Bank (SNB) would be forced to cut the overnight cash rate deeper into negative territory.
However, the EUR depreciation was short-lived as comments from President Mario Draghi during the accompanying press conference were very Euro supportive. Draghi stated that the central bank is not expected to cut the overnight cash rate again. This means that the ECB will avoid negative interest rates which have fuelled pessimism and negative sentiment.
The Swiss Franc was still holding gains versus its major peers towards the close of Thursday’s European session, but the appreciation was far narrower than the initial surge.
Now that the ECB has stated that policymakers are not expecting to cut the overnight cash rate again, pressure on the Swiss National Bank to follow suit eased considerably. Having already adopted negative rates, the prospect of deeper rate cuts weighed heavily on investor confidence. Provided the Franc remains comparatively stable against the Euro there will be no need for the SNB to cut rates.
Pound Sterling (GBP) Exchange Rates Gain on House Price Balance
The British Pound endured marked volatility during Thursday’s European session in response to the huge Euro price swings. A slight lean towards appreciation can be linked to a softer US Dollar (in response to Euro strength) and a positive result from Thursday’s solitary domestic data publication.
February’s RICS House Price Balance showed 50% of RICS members registered rising house prices. This was in line with the median market forecast and supported demand for the UK asset. However, the headline figure masked some less-than-ideal results from London. Only 3% of RICS members reported rising house prices in the capital. This suggests that overall house prices will fall in future readings given that London has been the main driver behind the significant rise in house prices seen recently.
Friday’s European session should see GBP volatility in response to domestic data. January’s Trade Balance data is forecast to show the deficit widened. Also, January’s Construction Output is predicted to contract by -1.7% on the year.
GBP/CHF Forecast: SNB Rate Decision in Focus
Both the UK and Switzerland’s economic dockets are comparatively sparse next week. However, next Thursday will see the hotly awaited Swiss National Bank interest rate decision. This is likely to cause volatility given uncertainty as to how policymakers will approach outlook after today’s ECB decision.
Thursday will also see the Bank of England (BoE) interest rate decision. This is unlikely to be as impactful given that analysts almost universally do not expect any changes to policy outlook at this time.
Over the past seven days, the Pound Sterling to Swiss Franc (GBP/CHF) exchange rate was trending within the range of 1.4007 to 1.4271.