Weakening Swiss Inflation Drives Pound Sterling to Swiss Franc (GBP/CHF) Exchange Rate Higher

Underwhelming Swiss Inflation Prompts Swiss Franc (CHF) Stumble

As the Swiss consumer price index showed a greater slowdown than expected in September this encouraged the Pound Sterling to Swiss Franc (GBP/CHF) exchange rate to push higher.

Inflation eased from 1.2% to 1.0% on the year, a dip that is likely to encourage the Swiss National Bank (SNB) to maintain its loose monetary policy for some time to come.

While the monthly inflation measure showed a modest improvement to pick up from 0.0% to 0.1% this failed to offer any particular support to the Swiss Franc (CHF).

Policymakers still look set to keep interest rates in negative territory for some time to come, especially as the SNB sees the Franc as highly valued.

As a result, as long as safe-haven demand keeps CHF exchange rates on a stronger footing the odds of any SNB policy tightening are likely to remain low.

Potential Brexit Breakthrough Prompts Pound Sterling Swiss Franc (GBP/CHF) Exchange Rate Boost

Hopes of an imminent breakthrough in Brexit talks helped to boost demand for Pound Sterling (GBP), meanwhile.

Reports that Ireland is willing to back Theresa May’s customs proposals prompted bets that this major stumbling block may soon be cleared, lowering the odds of a no-deal Brexit.

As long as investors see reason to expect negotiations to progress towards a formal agreement the mood towards the Pound is likely to remain bullish.

This latest bout of market optimism overshadowed a disappointing September Halifax house price index, limiting the impact of the -1.4% contraction in prices on the month.

Even so, until talks between the UK and EU reach a successful conclusion the GBP/CHF exchange rate still looks vulnerable to any fresh bouts of political jitters.

Swiss Franc (CHF) to Benefit From Risk Aversion and Italian Political Tensions

A steady Swiss unemployment rate is unlikely to offer any particular support to the Swiss Franc on Monday, with confidence in the domestic outlook already limited.

However, if market risk appetite continues to diminish this could see CHF exchange rates pushing higher across the board.

Elevated tensions between the Italian government and the EU may drive demand for the Swiss Franc in the days ahead as the conflict over budget proposals continues.

While the risks of an Italian exit from the Euro (EUR) remain slim the prospect of a fresh Italian debt crisis is likely to encourage further safe-haven demand.

Although another Eurozone crisis could have a detrimental impact on the already weakened Swiss economy the mood towards the Swiss Franc is still expected to improve if political tensions persist.

 

Resilient UK GDP Forecast to Support GBP/CHF Exchange Rate Gains

 

Confidence in the Pound may strengthen further if Wednesday’s monthly gross domestic product data proves positive.

 

An uptick in economic growth on the month would ease the pressure on the Bank of England (BoE), particularly in the wake of the disappointing second quarter UK GDP reading.

 

Signs of resilient domestic growth may encourage market bets that the BoE will continue to tighten monetary policy in 2019.

 

If the economy shows evidence of coming under fresh pressure as a result of Brexit-based uncertainty and easing consumer confidence, though, this may knock the Pound Sterling to Swiss Franc (GBP/CHF) exchange rate off its uptrend.

Hannah Wilson

Contact Hannah Wilson


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