Choppy trading since the start of the week has seen the GBP/CHF exchange rate fluctuating around 1.25 as Brexit fears undermine the Pound in spite of central bank attempts to weaken the Swiss Franc.
CHF Strengthens vs GBP, SNB Intervening Elsewhere?
The Swiss Franc is largely weak today, although the Brexit drag on the Pound has ensured CHF/GBP remains on the advance.
However, intervention in the currency markets by the Swiss National Bank (SNB) is currently keeping the Franc on the decline elsewhere, while limiting the extent of gains versus the Pound. The central bank is buying up Euros in an attempt to weaken the domestic currency due to the volume of ‘fear trades’ sparked by the Deutsche Bank saga in the Eurozone.
Germany’s biggest lender is facing a US$14 billion fine from the US Department of Justice (DoJ) and market fears that such an expense could trigger the collapse of the bank, if not the Eurozone banking sector, have seen many withdrawing from the common currency. While Swiss interest rates are currently negative, some investors have been so concerned over the fate of the Euro that they are willing to accept a negative yield in order to protect their capital.
This demand is strengthening the already overvalued Franc, causing problems for the Swiss economy. As such the SNB is buying Euros, weakening the Franc due to the large volume for sale on the markets.
GBP/CHF Exchange Rate Edges Lower on Brexit Fears
Despite choppy trading, the Pound is declining versus the Swiss Franc, although compared to the three-year low against the Euro and the 31-year low against the US Dollar losses have been minor, with a decline of -0.2% taking GBP/CHF down to around 1.2497.
The Pound remains in a weakened state today thanks to the recent developments regarding the UK’s approaching Brexit. Prime Minister Theresa May finally provided the markets with a solid timeframe for the withdrawal process, although investors were not pleased to hear that the exit trigger would be activated no later than the end of March 2017.
The Prime Minister also made several comments to suggest that she favours tighter immigration controls over single market access. Since numerous EU officials have stated outright that there is no decoupling of the single market and freedom of movement, observers have interpreted this as meaning the PM favours a ‘hard’ Brexit.
Pound Sterling remains unsupported today, despite the better-than-expected performance from the construction PMI, which copied yesterday’s manufacturing index to beat forecasts. The index had been expected to edge down from 49.2 to 49, but instead climbed to 52.3.
GBP/CHF Exchange Rate Forecast; Key UK Services PMI in Focus
While the latest PMIs have failed to shift focus away from Article 50, tomorrow’s services index has more clout with markets. Services accounts for over three-quarters of the UK economy, so investors may be more inclined to pay it attention than the manufacturing and construction measures. The index is also expected to weaken, although considering how the week’s other PMIs have performed it seems likely a rise is in store. This could temporarily distract investors from speculation over a ‘hard’ or ‘soft’ Brexit and provide some support for the stricken Pound.
Thursday brings important Swiss data, with the KOF Institute autumn economic forecast and consumer price data on the calendar. After deflation in August, forecasts are for monthly price growth of 0.2%, while year-on-year prices are expected to stagnate. This will be marginally positive for the SNB, as it shows the strength of the Franc is exerting less downward pressure upon consumer prices, although not by much.