The week leading up to the UK’s EU referendum saw the Pound Swiss Franc exchange rate trade fairly narrowly.
Enjoying a brief high as the polls closed on Thursday night, GBP/CHF instantly tanked following the revelation that the UK had chosen to exit the EU. The pairing spiked to 1.35 before the weekend but dropped down once more to close at 1.33.
Brexit uncertainty has seen the rate drop further this week. The recent rallying of gold prices started the Franc on an uptrend, although the commodity price has since slipped back. .
At the time of writing, the Pound Swiss Franc exchange rate traded at 1.3059 after appreciating by almost 1% during today’s session.
CHF Appeared Strong Pre-Referendum Thanks to Favourable Ecostats
Rising ‘Remain’ sentiment prior to the referendum saw the Pound Swiss Franc exchange rate rally as June 23
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approached. The pairing started out strong from the weekend and held onto gains through Monday, Tuesday, Wednesday and Thursday until the results were announced.
On Tuesday, the Swiss trade balance print showed an increasing surplus, which is a sign of Swiss exports ramping up. However GBP/CHF was mostly unaffected due to the much more dominant Brexit news.
Wednesday saw the release of a Swiss confidence survey for June which beat the previous month by almost 2 points, the release did seem to cause a marginal dip for the GBP/CHF pairing but it swiftly continued its pre-referendum ascent.
Brexit Shakes the Financial World to its Very Core, Uncertainty Reigns in Europe
And so it came.
On Thursday the UK population went to vote on the UK’s membership of the European Union and the results were 52⁄48 in favour of ‘Leave’.
The news of a Brexit sent financial shockwaves across the globe and stirred up an impenetrable cloud of uncertainty and risk-aversion within the markets. The Pound posted its largest single-day slide in history and some pairings reached a level last seen in the 1980s.
The unbelievable wave of investor apprehension has seen safe-haven demand skyrocket and gold prices were on the rise until today as people poured into the perceivably stronger assets. In fact, safe-haven demand was so prevalent that the US Dollar saw massive rallies across the board and the Japanese Yen also experienced similar appreciation.
As a result of the vote, the Pound Swiss Franc pairing was brutally gutted when all confidence in Sterling was cast aside, with almost all other Pound pairings suffering the same fate. Initially the pairing fell to a low of 1.3036 directly after the results but regained a small amount of its losses before closing into the weekend at 1.3327.
Initial Post-Brexit Gold Rally Boosts CHF
Gold saw a substantial rally as investors piled into the safe-haven asset amidst the towering inferno of Brexit unknowns, in turn, this saw the Swiss Franc firm at the start of this week.
As a result the GBP/CHF pairing saw an initial drop and has been slowly trending higher as gold prices start to settle. Swiss Franc movement has also been inspired by investors selling off the strong currency in a bout of safe-haven profit snatching that the US Dollar and Yen also experienced.
Future Unknown Until Policymakers Move Forward
The Pound’s future may be a little easier to discern once Thursday comes to pass as the Conservative party is expected to announce its front runners for the leadership spot.
However it shall still prove difficult to ruminate over Sterling’s future until at least one member of the UK government puts forward some kind of plan regarding the UK’s economic situation as the currency has all-but decoupled from domestic data prints. So far we have only had George Osborne stating that there will be further public sector cuts and a tax hike, which has not provided much support for the Pound.
The Swiss Franc should rebound somewhat after the session of profit taking but if gold continues to slide then the currency could see deprecation. CHF is heavily negatively correlated with the Euro so the current European market atmosphere has done well for the Franc.
The future of the Pound Swiss Franc pairing sits in European and British fiscal/monetary policymakers’ hands, so hopefully we will hear some more announcements as the week goes forward.