With centrist candidate Emmanuel Macron continuing to lead in the polls worries over the political future of Europe eased, reducing the appeal of the Swiss Franc. However, as members of the European Central Bank (ECB) executive board took a more hawkish view on monetary policy this offered some encouragement to markets. If the ECB begins to taper its quantitative easing program this would alleviate some of the pressure on the Swiss National Bank (SNB), potentially encouraging the central bank to raise interest rates from their record lows.
March’s ZEW economic sentiment survey showed a sharp uptick, meanwhile, rising from 19.4 to 29.6. This pointed towards a greater level of optimism within the Swiss economy, indicating that it remains in a relatively healthy state. An increased sense of risk aversion also drove investors back towards the safe-haven Franc as doubts over the US administration mounted, putting additional pressure on the GBP CHF exchange rate.
Pound Suffered Limited Downside from Formal Brexit Trigger
The much-anticipated triggering of Article 50 provoked a fresh bout of volatility for the Pound. While actual Brexit negotiations will not commence for some weeks yet the mood towards Sterling turned rather jittery. Although the general tone taken by Theresa May was considered to be conciliatory the two sides were found to be at odds over the order of negotiations. Angela Merkel’s insistence that a trade deal can only be discussed after the divorce bill is settled did little to allay worries that the UK could still be headed for an exit via the cliff edge.
Even so, with a large degree of Brexit-based uncertainty already priced into GBP exchange rates it was not long before the mood turned rather more bullish. Hopes also mounted that the UK might not face such a large bill for its departure, with European think tank Breugel estimating that the figure could be as little as 25 billion Euros. As a result the GBP CHF exchange rate returned to a stronger footing on Thursday.
Retail Sales Contraction Forecast to Weigh on CHF
Disappointing Swiss retail sales data could prompt the Franc to weaken more substantially on Monday. Forecasts point towards a fresh contraction in sales during February, which would suggest that consumer confidence is not translating into increased spending. A weaker showing here could dent the appeal of the Franc, although wider market sentiment could keep CHF exchange rates on a stronger footing.
While political developments look set to dominate the outlook of Sterling for the foreseeable future focus will still fall on the latest raft of UK PMIs. Investors are keen to gauge the ongoing resilience of the domestic economy, with a stronger showing likely to limit worries over the detrimental impact of Brexit-based uncertainty. However, with various financial institutions already expected to relocate jobs out of London any weakness within the service PMI could see the Pound slump sharply.
If worries over Brexit, upcoming European elections or the abilities of the US administration mount once again the Franc could be shored up. While a bullish Franc could boost the odds of the SNB loosening monetary policy further any deterioration in global market confidence could dent the GBP CHF exchange rate in the short term.