GBP to CHF Exchange Rate Dips as Brexit Jitters Push Investors Towards Safe Havens

June 7, 2018 – Written by Tim Boyer

The Swiss Franc’s appeal as a ‘safe haven’ currency has come back into fashion over the last month, as the currency has benefitted against other European rivals thanks to political jitters. The British Pound to Swiss Franc exchange rate has been unable to hold its gains this week as Brexit uncertainties hit headlines again.

After opening this week at the level of 1.3186, GBP/CHF spent most of the week climbing and touched on a June high of 1.3265. However, on Thursday Brexit uncertainties returned and briefly dragged GBP/CHF down to a low of 1.3131.

GBP Slumps as Brexit Uncertainties Retake Focus

While Sterling was supported earlier this week by stronger than expected UK PMI data from May, the British currency’s appeal faded towards the end of the week as Brexit news returned to headlines.

Much of Thursday’s UK news revolved around a perceived divide between UK Prime Minister Theresa May and UK Brexit Secretary David Davis, regarding a possible plan to keep the UK in an EU customs union in order to maintain Ireland’s soft border.

The issue of Ireland’s border post-Brexit has persisted for months now, as Northern Ireland wishes to keep a soft border with the rest of UK, as well as the Republic of Ireland which is in the EU.

UK Prime Minister May’s proposed ‘backstop’ plan to use the customs union has been criticised by hard Brexit supporters within the UK government. This worsened market jitters about potential fissures in Britain’s ruling party.

Sterling recovered slightly towards the end of the day as it seemed there would not be any resignations within the cabinet, following resignation rumours earlier in the day.

However, some officials were not hugely impressed with the UK government’s published backstop plan regardless, due to the claim that the backstop would be time limited. According to Ireland’s Prime Minister Leo Varadkar:

‘The principle that is in the existing backstop that is supported by the 27 EU member states is that it applies at least until there is an alternative in place. It is not something that can be just time limited.’

Sterling support also improved slightly towards the end of the day, on comments from Bank of England (BoE) official Dave Ramsden. Ramsden indicated that the bank may be on track to hiking UK interest rates by August 2018.

CHF Supported by Safe Haven Demand and Domestic Data

The Swiss Franc rally seen in May appears to have faded, but there is still some remaining appeal in the currency and this has made it easier for it to keep pressure on Sterling.

Global geopolitical uncertainties and political jitters in the Eurozone left ‘safe haven’ currencies like the Swiss Franc a lot more appealing, helping the Franc to surge following a weak start to 2018.

On Thursday, the Franc was able to gain against Sterling briefly due to the Brexit developments causing political uncertainty.

The Swiss Franc was also bolstered by recent data.

Wednesday’s Switzerland inflation rate beat expectations in both monthly and yearly prints in May, and the nation’s May unemployment rate beat forecasts on Thursday too.

Signs of strengthening inflation in Switzerland have made investors more hopeful that the Swiss National Bank (SNB) will avoid dovish rhetoric.

GBP/CHF Forecast: Political Developments and UK Data in Focus

The Pound to Swiss Franc exchange rate could still end the week higher, depending on potential Brexit developments and UK data on Friday.

NIESR’s UK growth estimate could boost Pound demand if it improves, but if there are further complications or obstacles in Brexit news Sterling may fail to sustain gains against the ‘safe haven’ Franc.

Demand for the Swiss Franc will be solid if investors are looking to avoid taking risks, but amid a lack of Swiss data due for publication in the coming week the currency could fall limp and upcoming UK data may drive GBP/CHF instead.

Next week will see the publication of many key UK ecostats, including unemployment on Tuesday, inflation on Wednesday and retail sales on Thursday.

Of course, if global risk-sentiment remains low or if Eurozone political jitters worsen again this could also keep pressure on the Pound to Swiss Franc exchange rate.

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TAGS: Pound Swiss Franc Forecasts