Pound Swiss Franc (GBP/CHF) Exchange Rate Rallies as BoE Fails to Mention Negative Interest Rates

Bank of England’s Expanded Quantitative Easing Fails to Dent Pound Swiss Franc (GBP/CHF) Exchange Rate

In the wake of the Bank of England’s (BoE) decision to expand its quantitative easing programme the Pound Sterling to Swiss Franc (GBP/CHF) exchange rate rallied.

Markets were widely relieved as the BoE’s meeting minutes failed to make fresh mention of the possibility of negative interest rates.

This helped to diminish the impact of the larger-than-expected expansion of the central bank’s QE, with an extra £150 billion now set to be pumped into the UK economy.

Even so, the upside potential of Pound Sterling (GBP) still proved limited thanks to the less optimistic nature of the BoE’s latest economic forecasts.

As policymakers expect to see the economy contract -11% on the year in 2020 there appeared little cause for confidence in the domestic outlook, muting the strength of GBP exchange rates.

Disappointing Consumer Confidence Index Puts Pressure on CHF Exchange Rates

Even so, the mood towards the Swiss Franc (CHF) proved largely bearish on Thursday as the fourth quarter Swiss consumer confidence index failed to improve as hoped.

As the index weakened from -12 to -12.8 this highlighted the persistent anxiety afflicting Switzerland, even as its government avoided calls for a fresh tightening of Covid-19 restrictions.

With weaker levels of consumer sentiment likely to weigh on economic activity in the months ahead this deterioration left CHF exchange rates on a weaker footing.

A general deterioration in safe-haven demand also dampened the appeal of the Swiss Franc, with easing anxiety over the ongoing US election count improving demand for more risk-sensitive assets.

US Election Uncertainty Continues to Fuel Swiss Franc Support

However, if the aftermath of the US presidential election continues to drag on without a clear winner this could help to boost demand for the Swiss Franc once again.

The longer that a resolution to the election eludes markets the greater the appeal of safe-haven currencies, offering support to CHF exchange rates.

On the other hand, the Franc could come under fresh pressure on Monday with the release of October’s Swiss unemployment rate.

As forecasts point towards an uptick from 3.2% to 3.4% on the month resurgent worries over the health of the Swiss labour market could see the GBP/CHF exchange rate pushing higher.

Lack of Economic Confidence Looks Set to Hamper Pound Strength

Lingering worries over the economic outlook of the UK may see the Pound struggling to hold onto a positive footing in the days ahead, meanwhile.

With the country on course for a double-dip recession the upside potential of GBP exchange rates could prove limited.

As fresh economic disruption remains on the horizon, thanks to the issue of Brexit, confidence in the health of the UK outlook may well weaken.

Even if October’s Halifax house price index shows steady growth on Friday this may not be enough to keep the GBP/CHF exchange rate from ceding back some of its gains.

Louisa Heath

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