Pound Sterling (GBP) Exchange Rates Falter Thanks to Grim BoE Economic Forecast
The cautious outlook on display in the Bank of England’s (BoE) May meeting minutes helped to knock the Pound Sterling to Swiss Franc (GBP/CHF) exchange rate off its uptrend this morning.
As the BoE forecast that the UK economy will experience a -14% contraction in 2020 the mood towards Pound Sterling (GBP) naturally soured.
However, investors soon took heart from the accompanying forecast that the economy could bounce back sharply in a V-shaped recovery next year.
Bank of England says the economy will contract by 25% in the second quarter. Yes it’s bad.
However, it’s far better than OBR forecast of -35% a couple of weeks ago.
Plus take a look at the projected recovery… pic.twitter.com/PMlsLDAPXe
— Anna Stewart (@annastewartcnn) May 7, 2020
With markets increasingly optimistic about the prospect of Boris Johnson announcing a degree of easing in lockdown conditions in his Sunday address GBP exchange rates soon recovered some of their lost ground.
Hopes of Global Lockdown Easing Leave Swiss Franc Under Pressure
Support for the safe-haven Swiss Franc (CHF) proved a little muted, meanwhile, as investors continued to bet on the prospect of the global economy reopening sooner rather than later.
Although the risk of a second wave of Covid-19 infections remains as governments start to ease their lockdown conditions this was not enough to encourage any particular sense of risk aversion today.
Confidence in the underlying performance of the Swiss economy also took a hit as April’s unemployment rate picked up from 2.9% to 3.3%, in line with forecasts.
As the Swiss economy comes under pressure thanks to the global pandemic CHF exchange rates struggled to find any particular traction, allowing the Franc’s rivals to gain ground.
Soft UK Consumer Confidence May Weigh on GBP/CHF Exchange Rate
Fresh pressure could be in store for the GBP/CHF exchange rate overnight, though, thanks to the release of May’s GfK consumer confidence index.
Forecasts point towards the index falling deeper into negative territory this month, reflecting the impact of the ongoing economic shutdown.
However, if consumers show greater signs of hope over the possibility of conditions beginning to return to normal in the months ahead this could offer the Pound a boost.
As high levels of consumer spending have previously helped to shore up the UK economy in times of trouble any improvement in the confidence index could encourage GBP exchange rates to rally.
Lack of Market Risk Appetite to Limit Swiss Franc Potential
As long as market risk appetite remains muted the Swiss Franc may struggle to return to a stronger footing against its rivals.
With fresh Swiss economic data thin on the ground in the days ahead CHF exchange rates look vulnerable to a sustained bout of selling pressure.
However, if market sentiment turns bearish once again this could encourage the Franc to push higher across the board.
Evidence that the Chinese economy saw another lacklustre month of performance in April may give investors fresh cause for anxiety, suggesting that the world’s largest economy is not bouncing back as quickly as hoped.