Pound to Swiss Franc Rate Today: GBPCHF Falls to 12-month Lows

October 18, 2023 - Written by David Woodsmith

STORY LINK Pound to Swiss Franc Rate Today: GBPCHF Falls to 12-month Lows

Risk Appetite Slides on Middle East Fears, GBP/CHF Exchange Rate Slumps

A slide in risk appetite on Middle East fears has supported the Swiss franc in global markets. The slide in equities has undermined the Pound, especially with US yields sharply higher on the day.

In this environment, the Pound to Swiss franc (GBP/CHF) exchange rate has posted sharp losses to a 12-month low at 1.0900 before a marginal recovery.

The Euro to Franc (EUR/CHF) exchange rate has also slumped to 12-month lows at 0.9450 before a slight recovery.

Overall risk conditions have been a key influence during Wednesday.

There have been further claims and counterclaims surrounding the strike on a hospital in Gaza.

Hamas has claimed that the strike was due to an Israeli missile strike while Israel has insisted that it was due to a rocket from Islamic Jihad which misfired.

President Biden visited Israel during the day and appeared to back the Israeli narrative.

The incident has increased regional tensions sharply with Biden, for example, forced to cancel planned talks with Arab and Palestinian leaders.

Middle East fears have triggered further upward pressure on oil prices, especially with the latest inventory data registering a substantial draw, while equities have come under pressure.

Iran has called for an oil embargo and other sanctions against Israel, although OPEC sources have stated that there are no plans to hold an extraordinary meeting.

According to Michael Hewson at CMC Markets; “European markets are on the back foot today as the political temperature in the Middle East ratchets up further in the wake of the hospital bombing in Gaza.”

He added; “With evidence starting to emerge that Israel may not have been responsible for the blast, the reality is that this may no longer matter given the heat already generated by last night’s horrific events. A lot of people have already made up their minds and aren’t likely to be dissuaded from their initial views which could well mean that it is going to be very hard for cooler heads to prevail.”

Hamza Meddeb, director of the political economy programme at the Malcolm H. Kerr Carnegie Middle East Center in Beirut commented; "Whether this conflict remains limited to a confrontation between Hamas and Israel or escalates into a broader regional conflict involving Iran's proxy armed groups, notably Hezbollah, will have significant implications.”

He added; "Such an escalation could lead to increased oil prices, concerns about oil supply, and the potential for a global economic downturn."

Chris Giamo, head of commercial banking at TD Bank commented; "The war in Ukraine and the recent events in the Middle East are absolutely weighing on markets and any geopolitical issues and uncertainty will usually create a flight to safety for investments."

The Swiss franc has gained further strong support amid the spike in risk aversion.

Standard Chartered notes the potential for further Swiss franc gains; “There is tail risk to CHF strength if risk aversion becomes the main global FX theme. This upside risk would be driven by geopolitical concerns, rather than the SNB policy stance.”

There has also been a fresh surge in US yields with the 10-year yield jumping to above 4.90% and the highest level since 2007.

Higher oil prices will put upward pressure on inflation and potentially undermine bonds

Steven Ricchiuto, U.S. chief economist at Mizuho Securities indicated potential doubts over the long-term commitment to bring inflation under control; “The Fed is trying to deliver a stronger labor market at the risk of running an inflation rate a bit higher than its 2% target. Are they really committed to a 2% inflation target or they committed to 2% being an objective, the long-term target being 3%?"

Higher bond yields have undermined equities with significant Wall Street losses while the FTSE index has declined just over 1.0%.

Weaker risk appetite has also undermined the Pound in global markets.

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