An unexpected and sudden end to the Conservative party leadership contest helped the Pound recover recent losses on Monday, with the GBP CHF exchange rate trending between 1.2552 and 1.2948 over the past seven days.
Smaller-than-Expected UK Trade Balance Aids GBP CHF Recovery
Friday saw data for both nations moving the GBP CHF exchange rate, with the Pound proving to be the dominant currency. Plummeting consumer confidence post-‘Brexit’ vote failed to weigh on Sterling, despite sentiment experiencing its largest decline in 21 years. May’s trade balance figures boosted market confidence as the previous month’s deficits were revised lower and the shortfall failed to widen as much as expected.
Swiss data earlier in the day had been positive as well, helping the Franc to resist stronger appreciation from the Pound. June’s unemployment rate ticked unexpectedly lower, dropping from a downwardly revised 3.2% to 3.1%, despite forecasts of 3.3%. Seasonally-adjusted unemployment held steady at the downwardly revised level of 3.3%, rather than rising to 3.5% as predicted.
Although the Pound recovered some of the week’s losses, trending in the region of 1.2733 at the end of the week, it still closed around -2.5% below Monday’s opening levels.
Turbulent Trading for Pound Sterling as Tory Leadership Contest Abruptly Ends
The Pound saw choppy trading yesterday after Tory leadership contender Andrea Leadsom unexpectedly announced she was withdrawing from the race and would therefore be backing Theresa May as Prime Minister.
In her statement, Leadsom explained;
‘
For me personally, to have won the support of 84 of my colleagues last Thursday was a great expression of confidence for which I am incredibly grateful.
Nevertheless, this is less than 25% of the parliamentary party and after careful consideration I do not believe this is sufficient support to lead a strong and stable government should I win the leadership election.
’
The news created a frenzy of speculation as traders and commentators tried to discern how events would unfold. There was some confusion over whether the Conservative party’s 1922 Committee would allow another contender to enter the race – likely to be Michael Gove, the third place candidate – or if May would automatically become Prime Minister. The latter was quickly confirmed, helping the Pound Franc exchange rate to recover to within a few pips of opening levels.
The only development from Switzerland was data showing that total sight deposits in the first of week of July marginally increased on previous levels. Given the large potential impact of the UK’s political developments, the low-impact Swiss data made little impact, if any.
The Pound has been largely bullish again today on trader relief that the UK is less than a day away from having a new Prime Minister. Market focus can once again return to Article 50, which May has already promised she will trigger despite having backed the ‘Remain’ camp in the referendum.
GBP CHF is currently trending up 0.9%.
Pound Sterling Swiss Franc (GBP CHF) Forecast; BoE Rate Decision to Dominate
There are only two Swiss data releases left for the entire week; the producer & import prices indices for June, which are expected to show weakening price growth on the month and a slowing decline on the year.
The main focus of the week and beyond for GBP CHF will be Thursday’s interest rate decision from the Bank of England (BoE). Markets are widely anticipating a rate cut from the Monetary Policy Committee (MPC), with the most dovish forecasts expecting interest rates to be lowered to 0.00% and quantitative easing resumed.
As a result, the outlook for GBP CHF is currently bearish. Should the MPC decide to hold rates, the Pound will likely recover, although continuing expectations of policy easing will keep gains in check going forward.