Forecasts of 5.8% UK Unemployment in 2019 Sends GBP CHF Lower

The Pound to Swiss Franc exchange rate has dropped to 1.28, but could return to May’s best rate of 1.30 on incoming inflation figures.

The Pound’s dip against the Franc has been caused by an EY Item Club forecast for UK unemployment.

While unemployment in 2017 is expected to remain at 4.7%, forecasts are for 5.4% in 2018 and 5.8% in 2019.

This has been attributed to difficulties in filling vacancies, as well as a greater focus being applied to ‘labour-saving technology’.

The Franc’s rise against the Pound today has largely been caused by rising gold prices. The commodity has climbed in value to $1234.2 per tonne.

Uncertainty in the US and general economic turbulence has led traders to buy gold as a ‘safe’ commodity, which has driven up its price.

This week, Pound/Swiss Franc exchange rate movement may follow Tuesday’s UK inflation rate figures, Wednesday’s UK jobs stats and Thursday’s UK retail sales results.

Further ahead, a Swiss referendum on May 21
could affect demand for the Swiss Franc, as could gold price movements.

Starting from the top, Tuesday’s UK inflation rate stats for April are forecast to show an annual rise from 2.3% to 2.6%. This would put inflation 0.6% above the Bank of England (BoE) target and could pressurise the BoE into raising the UK interest rate.

If inflation rises as expected, the GBP CHF exchange rate could accelerate as UK interest rate hikes typically cause a surge in demand for Sterling.

Wednesday’s UK jobs data will include jobless claims for April and unemployment rate and earnings stats for March.

Claims are forecast to rise slightly, but unemployment is expected to remain unchanged at 4.7%. The crucial data will be the earnings figures; if earnings slow or remain under the rate of inflation, the Pound may weaken.

This is because higher inflation compared to wages decreases ‘real incomes’, which can negatively affect the economy due to lessened retail spending.

That said, Thursday’s UK retail sales for April have been forecast to grow in most fields, which could raise Pound demand.

In Switzerland, Sunday’s referendum will see a challenge to government plans to cut the nation’s reliance on nuclear power.

Switzerland’s democracy allows the challenging of any law revisions; this plan has been opposed by the Swiss People’s Party (SVP).

The SVP argues that switching away from nuclear would cost households 3200 Francs a year, while the government believes it would only be 40 Francs.

Assuming that the government’s figures are correct, the Franc may appreciate if the SVP challenge is defeated, while an SVP-supportive referendum result could weaken the CHF GBP exchange rate.

The Franc could also be influenced by gold prices this week; if the commodity cost rises sharply then the Franc may also appreciate.

Oliver Meredew

Contact Oliver Meredew