Pound Swiss Franc Exchange Rate Falls amid Franc Sell-Off

(Updated 16:45 22/02/22)

The Pound Swiss Franc (GBP/CHF) exchange rate has shot upward today despite a risk-off market mood. The Swiss Franc (CHF) may have been harmed by an overperformance yesterday as well as a receding risk appetite.

Pound Swiss Franc (GBP/CHF) Exchange Rate Ticks Upward after Franc Overperforms

The Pound Swiss Franc (GBP/CHF) exchange rate traded narrowly today despite a risk-off trading mood. Risk appetite has been limited following reports this morning that Russian troops have moved into Eastern Ukraine. A likely sell-off of the Swiss Franc (CHF) following a drive to safe-haven currencies on Monday has helped firm the currency pair.

At time of writing the GBP/CHF exchange rate is at around ₣1.2468, virtually unchanged from this morning’s opening figures.

Swiss Franc (CHF) Drops as Profit-Taking Hits Safe-Haven Currency

The Swiss Franc (CHF) fell against its competitors today despite its safe-haven status. The Franc hitting nearly one-month highs today has likely led to profit-taking, particularly as the currency outperformed yesterday.

Investors flocked to CHF as reports indicated that Russian President Vladimir Putin had ordered troops into Eastern Ukraine. The move has been widely condemned by the Western community with harsh sanctions sure to follow.

Russian troops have moved into the Russian-backed provinces of Donetsk and Luhansk as ‘peacekeepers’. The Kremlin has said that it will recognise both regions as independent. Both the US and UK believe that a full-scale invasion of Ukraine will soon follow.

Pound (GBP) Falls despite First Budget Surplus since Covid-19 Pandemic

The Pound (GBP) has fallen against the majority of its rivals today as risk-off trading continues to dominate the markets. Reports of Russian troop movements into Eastern Ukraine have seen investors flock to safe-haven currencies.

Losses for Sterling may be limited by the UK’s first budget surplus since the start of the Covid-19 pandemic. Despite a weaker than expected performance, borrowing is down £5.4B from January 2021.

Additional tailwinds for the Pound have likely come from expectations of a third consecutive rate hike from the Bank of England (BoE). PMI figures for February released on Monday showed the strongest performance in the UK’s private sector since June 2021.

Thomas Pugh, UK economist at firm RSM, said:

‘The strong February PMI reading makes it even more likely that the committee will raise interest rates from 0.5% to 0.75% at its next meeting in March; and raises the risk of a 0.5 point jump, although a 0.25 point rise is more likely.’

Finally, the announcement that the UK will be scrapping the last of its Covid restrictions could also help curb downward movement for GBP. PM Boris Johnson announced an end to legally mandated self-isolation on Monday. Johnson came under widespread criticism however as he also announced an end to free testing and day one sick pay.

GBP/CHF Exchange Rate Forecast: Will Bailey Hint at Scale of Rate Hike?

Looking to the week ahead for Sterling, industrial trends data for February due on Tuesday could push GBP down should they fall as forecast. The figures could undermine Monday’s PMI figures and harm expectations of a recovery in the UK’s retail sector.

A speech from BoE Governor Andrew Bailey on Thursday could help the Pound climb should investors pick up on any further hints of an interest rate hike. Additionally, speeches from a number of BoE policymakers over the course of the week could have a similar effect.

With no significant data for the Swiss Franc this week, the currency’s fortunes are likely to be dictated by global risk appetite as the Ukraine-Russia crisis develops further.

Gareth Monk

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