The Pound was able to hold gains against the Swiss Franc when markets opened on Monday despite an increase in demand for ‘safe haven’ currencies following Donald Trump’s turbulent first weekend as US President. GBP/CHF trended at around 1.24 at the time of writing.
Pound (GBP) Benefits from UK Government’s Trade Focus
The Pound has continued to perform strongly this week after last week’s advances due to a perceived focus from the UK government on being competitive in global trade after the Brexit process is complete.
Many investors had previously feared the UK would become protectionist, but fears about the UK economy have faded slightly as the government consistently maintains it will quickly work on new trade deals outside of the EU.
As a result, investors are readjusting their positions on the Pound amid concerns that other key economies such as the US and France may become much more anti-trade in comparison with populism rising in the west.
Swiss Franc (CHF) Defenses Increase due to ‘Safe Haven’ Demand
GBP/CHF’s gains may have been more significant on Monday if not for increased demand for ‘safe havens’ in the market, which allowed the Swiss Franc to limit Sterling’s advances.
The price of gold, which is commonly correlated to safe Swiss Franc, neared a two-month-high on Monday as US President Donald Trump made global markets anxious in his first weekend in office.
During his inauguration speech on Friday, Trump channelled a sense of protectionism.
As investors feared US trade ties would be severed and that Trump’s proposals to stimulate the US economy may not be as impressive as hoped, investors sold the US Dollar and risk-correlated currencies in order to protect their assets in safer investments.
GBP/CHF Forecast: Continued ‘Safe Haven’ Rally Could Weigh on Gains
Depending on the actions Donald Trump and his administration take during his first full week as US President, demand for ‘safe haven’ currencies like the Swiss Franc may increase considerably – or it may weaken.
Markets will be keeping an eye on Trump’s movement in relation to fiscal policy. If Trump puts policies in place that will stimulate the US economy quickly, the Swiss Franc may continue to benefit as investors look to avoid the volatility of markets amid an accelerating US economy.
The Swiss Franc may also benefit if Trump fails to bolster the US economy but continues to threaten US trade deals as this will cause markets to look for non-USD safe havens.
Overall, it appears likely that safer currencies will be in demand in the coming months.
However, the British Pound is also likely to see continued strength on future UK trade hopes, particularly if the UK Supreme Court upholds a High Court decision that Article 50 must be activated through Parliament rather than just by the government.
As for data, GBP/CHF may also be influenced by Tuesday’s UK public finance borrowing figures. ZEW will be publishing its January economic expectations survey for Switzerland on Wednesday.