UK Government Borrowing Hits 11-Year Low – Pound Swiss Franc (GBP/CHF) Exchange Rate Crawls Higher

UK Domestic Data Proves Mixed – Pound (GBP) Exchange Rates Inch Higher

The Pound to Swiss Franc (GBP/CHF) exchange rate crawled higher on Tuesday, supported by a marked fall in UK government borrowing and a diminishing Swiss trade surplus.

According to the Office for National Statistics (ONS), government borrowing in the UK dropped to its lowest annual level in 11 years, falling by £3.5b to £42.6b in the 2017-2018 financial year.

This was significantly below the Office for Budget Responsibility’s estimate of £45.2b last month and meant that UK Chancellor Philip Hammond had successfully achieved his borrowing target for the year.

Mr Hammond stated:

‘Thanks to the hard work of the British people, borrowing is the lowest in over a decade. Our economy is at a turning point with debt starting to fall and people’s wages rising, as we build an economy that truly works for everyone.’

Whilst this does not necessarily indicate an improving economy (with falling public borrowing continuing to reflect falls in spending), it is nonetheless good news for Sterling, which saw a marked rise in response.

In other, slightly worse news, the CBI business optimism indicator for the UK fell to a score of -4 in Q2 2018, down from 13 in the previous quarter.

This represents a deterioration in general business sentiment, with output growth slowing and domestic orders remaining stagnant on the quarter.

Export prospects continue to improve though, with export order growth accelerating at the fastest rate in over 20 years.

As a result, the overall effect on demand for Sterling was minimal, with markets still valuing the Pound thanks to hawkish Bank of England (BoE) expectations for May.

Swiss Trade Surplus Narrows – Swiss Franc (CHF) Exchange Rates Largely Unperturbed

The Swiss Franc (CHF) exchange rate traded mostly flat in today’s session, with markets unperturbed by a small fall in Switzerland’s trade surplus.

The Swiss trade surplus narrowed to CHF 2.32bn in March 2018, down from the revised CHF 3.18bn in the previous month and the forecast of CHF 2.9bn.

Exports were largely unchanged, but imports experienced an increase of 5.4%.

This release is however largely regarded as lower-tier data by the markets, which meant that it had very little effect on the overall performance of the Swiss Franc.

Looking ahead, markets will be keen to respond to tomorrow’s Swiss economic sentiment index for April, with a rise in optimism expected by analysts.

Pound Swiss Franc (GBP/CHF) Exchange Rate Forecast: UK GDP in the Spotlight

The Pound to Swiss Franc (GBP/CHF) exchange rate could encounter some volatility later in the week as investors respond to the UK’s growth readings.

Traders are currently waiting with bated breath for Friday’s UK gross domestic product (GDP) results, with the preliminary estimate for Q1 2018 expected to accelerate from 1.4% to 1.5% year-on-year, and remain steady at 0.4% quarter-on-quarter.

These results will dictate the direction that the Bank of England (BoE) takes in May, but with the storms in late February and early March harming the UK’s services sector (which makes up 80% of British GDP) many are concerned that growth for this quarter could have been limited.

Beyond these readings, markets will be assessing speeches on Friday from BoE Governor Mark Carney and Policymaker Andy Haldane, with any optimism liable to give Sterling a shot in the arm.

John Cameron

John studied economics at Cambridge University and later became an MSTA qualified Technical Analyst. He began working for TorFX almost a decade ago and now holds a Senior Account Manager position. As well as lending his clients support and guidance, John has produced market commentary and detailed exchange rate analysis for a number of online publications.

Contact John Cameron