The Swiss Franc’s recent resilience could be back in play this week, as weakness in rivals and global trade jitters leave the safe currency relatively appealing. The British Pound to Swiss Franc (GBP/CHF) exchange rate saw mixed movement on Monday due to UK political developments, as investors waited for uncertainty to settle.
Last week, stronger UK data and a brief boost in demand for risky trade-correlated currencies made it easier for GBP/CHF to recover from 1.3077 to around 1.3160. When markets opened on Monday, GBP/CHF touched on a high of 1.3189 – the pair’s best level in three weeks – before dipping and trending just above the week’s opening levels again.
GBP Edges Higher as Investors Show Cautious Optimism on UK Political Developments
On Sunday night, now ex-Brexit Secretary David Davis suddenly resigned from his role due to disagreements with the direction of UK Prime Minister Theresa May’s Brexit plans.
Davis had been more of a hardline Brexit advocate, his influence in the role causing concern for investors and businesses fearing a ‘hard Brexit’.
As a result, his resignation briefly caused a surge in demand for the Pound, though this demand steadied out quite quickly as other uncertainties set in.
Political analysts warned that there could be other high-level resignations following Davis’, or even the possibility of a no-confidence vote or leadership challenge towards UK Prime Minister Theresa May.
However, as of the early afternoon, Davis appeared to have been smoothly replaced in the role by Dominic Raab.
While still an advocate for a harder Brexit, Raab is seen as more of a pragmatist and investors are hopeful he may clash less with EU negotiators or the angle of Prime Minister May’s Brexit plan.
In comments following his departure, Davis also indicated that he did not plan to challenge May’s leadership, saying he felt she was a good Prime Minister.
Overall, markets were optimistic about the developments but remained cautious due to the possibility of more uncertainties and developments over the week.
According to Connor Campbell, financial analyst at Spreadex:
‘Sterling continued to benefit from the resignation of Brexit Secretary David Davis, with his claim that he won’t challenge Theresa May’s Tory leadership, alongside the swift appointment of Dominic Raab as his replacement, extending the pound’s Monday gains.
Hopes that Davis’ grumpy abandonment of his passion project will lead Britain away from the harder EU exit Double D was after, and towards the ‘softer’ Brexit proposed by Theresa May at Chequers over the weekend has allowed the pound to ride-out Monday’s bumpy ministerial transition.’
CHF Supported by Safe Haven Demand and Weakness in Rivals
The Pound’s gains against the Swiss Franc were limited on Monday, as investors continued to find the Swiss Franc appealing too.
Last week saw the publication of some disappointing US wage data, leading to a US Dollar (USD) selloff.
This, as well as the persistent market jitters surrounding US trade protectionism and the US-China trade war have left investors favouring the Swiss Franc to the US Dollar in terms of safe haven demand.
Demand for the Swiss Franc was little affected by the publication of Switzerland’s June unemployment rate on Monday.
Swiss unemployment remained at 2.4% in June, as analysts expected.
GBP/CHF Forecast: UK Political Developments and UK Growth Results in Focus
While the UK government attempted to continue on like normal promptly following the resignation of David Davis, market uncertainty still persists.
Chatter about the possibility of a government leadership challenge, as well as the ever-present fissures within the government over the angle the Brexit process should take, continue to keep pressure on Sterling trade.
Markets are likely to remain a little on edge about UK politics in the coming sessions, amid the possibility of further developments. This may limit the Pound’s potential for gains against the safe haven Swiss Franc.
Sterling movement will be driven by UK data in the coming sessions too.
Tuesday will see the publication of most of the week’s most influential UK ecostats, including UK trade data and production figures from May, as well as Britain’s highly anticipated first monthly growth report.
UK Gross Domestic Product (GDP) reports recently switched from quarterly to monthly, with May’s figure due for publication on Tuesday. This has the potential to affect Bank of England (BoE) interest rate hike bets if it surprises.
As for the Swiss Franc, Swiss producer prices data will come in on Friday. These results are likely to be low influence though, so the safe haven Franc will be influenced more by risk-sentiment and the strength of its rivals.
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TAGS: Pound Swiss Franc Forecasts