Pound to Swiss Franc: Five-Week Best Exchange Rate at 1.106

January 23, 2024 - Written by David Woodsmith

STORY LINK Pound to Swiss Franc: Five-Week Best Exchange Rate at 1.106

The Pound to Swiss franc (GBP/CHF) exchange rate secured a further advance on Monday and posted a 5-week high fractionally above 1.1060 before settling above 1.1050.

The Pound performance is in sharp contrast to late 2024 when the pair hit 3-month lows below 1.0650.

The Pound drew some support from solid UK equity markets during the day.

Barclays commented on recent UK data, “Increasingly, it looks like the MPC's decision to aim off of its suite of wage models may have baked in too much caution, and that the historical relationships on which the models are estimated may have reasserted themselves.

It added; “In a big data week for the UK, wages came in softer than expected, inflation surprised to the upside, and retail sales fell back substantially. However, the bigger picture remains that inflation and wage growth are a long way below where the BoE expected, setting the backdrop to its February decision.

There may, therefore, be scope for a less restrictive BoE policy which could limit Pound support.

The Pound overall has held firm and PMI readings this week will be crucial for sentiment.

Latest COT data released by the CFTC, recorded a notable increase in non-commercial long Sterling positions to just below 31,000 contracts from 20,700 the previous week.

This was the largest long position since September 2023 and will tend to limit the scope for further Pound buying unless there is notable favourable data surrounding the UK economy.

Credit Agricole commented; “Our FX flow data points at banks and hedge funds inflows, as well as corporates and real money investors outflows. All in all, the GBP is in overbought territory.

The franc overall lost ground in currency markets with the Euro to Swiss franc (EUR/CHF) exchange rate strengthening to 1-month highs around 0.9465.

There was a further market reaction to more dovish comments from Swiss National Bank (SNB) Chair Jordan last week.

According to Jordan "We can currently see from the inflation forecast that further interest rate increases are not necessary to maintain price stability."

He forecasted that inflation should remain below 2% for the next three years and added; "The battle against inflation is not yet completely won, but we have a much better situation than last year."

As far as the currency is concerned, he noted that the appreciation of the franc poses challenges for many companies.

Until recently, the impact of the currency's rising value was reduced by higher inflation abroad.

According to Jordan, however; “Towards the end of 2023, we also saw a certain real appreciation of the franc. Of course we take that into account."

ING considers that the comments are important; “Swiss National Bank President Thomas Jordan said that strength in the Swiss franc was having a material impact on the Swiss inflation outlook - i.e. depressing it. This can be seen with the sharp rise in the real trade-weighted Swiss.

It added; “In effect, while the ECB might be pushing back against easing expectations, the SNB is pushing in favour of those easing expectations given the franc is too strong.”

Goldman Sachs was cautious in reading too much into the comments; “we read the statement as a signal of the definitive end to hikes rather than the start of cuts - it is likely this will keep the SNB’s inflation forecast close to the target, but not at risk of falling too low.”

It added; “While we do think the SNB’s preference has shifted, as they are no longer explicitly targeting a strong CHF, it is not obvious that the SNB’s change should lead to depreciation either.”

It summarised; “So while the SNB may no longer have a strong currency policy, their current outlook does not seem like a particularly weak one either.”

Bank of America does see scope for franc losses; “We expect EURCHF modestly higher in line with the symmetric SNB stance.”

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TAGS: Pound Swiss Franc Forecasts