Sterling was able to advance slightly against a weaker Swiss Franc on Monday, despite UK economic and political concerns.
The Franc was weakened by Fed rate hike bets and limited ‘safe haven’ demand. GBP/CHF dropped from 1.2490 to 1.2428 last week, but recovered to around 1.2450 on Monday.
Pound Sterling Gains Limited by Economic and Political Uncertainties
While the Pound advanced slightly against the Swiss Franc on Monday, Sterling performance was relatively weak overall and as a result the currency was unable to capitalise on the Franc’s losses.
Sterling continued to feel pressure from last week’s disappointing slew of UK ecostats, which notably all fell short of expectations.
May’s trade deficit deepened, while industrial and manufacturing production prints unexpectedly contracted.
These datasets weighed heavily on market hopes for economic resilience in Britain and undermining speculation that the Bank of England (BoE) could tighten monetary policy if the economy remains strong.
As well as these economic uncertainties, the Pound’s strength has been limited by ongoing Brexit jitters and other political concerns.
EU leaders continue to criticise UK Prime Minister Theresa May’s proposal for EU citizen rights, stating they lack detail and do not offer EU citizens the same level of protection they currently enjoy.
May doesn’t just have to worry about EU leaders this week amid rising speculation that some in the Conservative party could mount a leadership challenge later in the year.
Swiss Franc Weaker on Low ‘Safe Haven’ Demand
The Swiss Franc was sold on Monday due to both global and domestic factors.
The US Dollar strengthened on Fed rate hike bets, weakening demand for its ‘safe haven’ rivals like the Swiss Franc. Gains in European equity markets also indicated that ‘safe haven’ demand was weakening on Monday.
Prices of gold have dropped in recent sessions too, weakening investor appetite the gold-correlated Franc.
On top of this, last week’s Switzerland inflation report was disappointing, giving the Franc little appeal.
Last week’s June inflation results revealed that Swiss inflation dropped from 0.2% to -0.1% month-on-month, despite being projected to come in at 0%. The year-on-year inflation rate was forecast to only slow from 0.5% to 0.3%, but instead slipped to 0.2%.
GBP/CHF Forecast: Investors Anticipate UK Wage Data
The Pound to Swiss Franc exchange rate could extend its gains by the end of the week depending on Britain’s key wage growth stats, due for publication on Wednesday.
With rising inflation and slowing wage growth leading to less disposable income for UK citizens, concerns are rising that slower consumer activity could dent Britain’s economy in the second half of 2017.
As a result, Pound investors would be happy to see May’s wage growth report beat expectations. On the other hand, worse-than-expected wage data would lead to an even weaker Pound outlook.
Sterling trade may also be influenced by Britain’s May unemployment figures and June’s jobless claims data.
As for the Swiss Franc, this week’s Switzerland data is unlikely to be notably influential. Producer and import prices results from June will be published on Thursday, but besides that the Franc is more likely to react to market risk-sentiment.