Since the Conservative party conference the Pound to Swiss Franc exchange rate has shed significant value, with investors selling out of the ailing Sterling as fears of a hard Brexit rose. The increasingly hard rhetoric being taken by members of the government suggests that the UK’s access to the single market could be sacrificed in order to impose greater migration controls. This is not a prospect that encourages confidence in the outlook of the UK economy, with the financial sector particularly at risk in the event of such a severe divorce.
Franc Boosted as Markets Remain Dismissive of SNB Easing Prospects
Increased market risk aversion benefitted the Swiss Franc, meanwhile, with rising bets of an imminent Federal Reserve rate hike boosting the appeal of safe-haven assets. However, the GBP CHF exchange rate was able to make a modest rally on Thursday in response to September’s Swiss Consumer Price Index data. Disappointingly, inflationary pressure was found to have weakened unexpectedly on both the month and the year, taking the Swiss National Bank (SNB) further from its 2% inflation target.
With markets still sceptical of the chances of the SNB being able to deploy further monetary easing measures, given that domestic interest rates are already deep in negative territory, it was not long before the Franc began to regain ground. As the Eurozone banking sector is still a cause for concern and political uncertainty continues to grip global markets the safe-haven currency remains a largely attractive proposition.
The GBP CHF exchange rate was driven to a fresh five-year low of 1.20 ahead of the weekend, thanks to a flash crash seen during the Asian session. This severely shook confidence in the Pound, particularly as prominent EU officials adopted a similarly tough stance on the matter of Brexit. With hope of the UK maintaining a relatively close trade relationship with the EU fading there was little beyond technical support to improve the appeal of Sterling.
GBP CHF Exchange Rate Extended Downtrend on Persistent Brexit Worries
Confidence in the Franc was boosted on Monday by a surprise improvement in the Swiss Unemployment Rate, which dipped from 3.4% to 3.3%. This offered some measure of encouragement in the health of the domestic economy, suggesting that conditions remain resilient despite the weak inflationary outlook. With markets also taking a more optimistic view of the US presidential election this saw the Franc boosted further, continuing to capitalise on the softness of the Pound.
Demand for Sterling remained muted in the absence of fresh domestic data, particularly with a number of international banks indicating their intentions to scale back their London operations in the event of a hard Brexit. Comments from the Bank of England’s (BoE) newest Monetary Policy Committee (MPC) member Michael Saunders did not help to improve the appeal of the Pound, as he suggested that the BoE could tolerate inflation overshooting its 2% target. This indicated that interest rates are likely to remain low for longer, keeping the GBP CHF exchange rate on a downtrend.
The Franc could be dented later in the week if September’s Producer and Import Price Index also proves discouraging. Volatility could also be seen in response to a speech from SNB vice President Fritz Zubruegg, although markets may still continue to dismiss the likelihood of the central bank engaging in further monetary stimulus. With Brexit-based anxiety expected to persist the GBP CHF exchange rate is expected to remain on a weaker footing in the coming week.