As Brexit jitters worsened again on Monday, the British Pound to Swiss Franc (GBP/CHF) exchange rate slumped. The Pound was unable to climb versus the sturdy Franc last week even despite the brief jump in Brexit optimism, as consistent demand for ‘safe haven’ currencies has kept the Swiss Franc bullish.
The Pound was unable to sustain last week’s brief Brexit surge, and ultimately GBP/CHF slipped from 1.2628 to 1.2548 throughout the week. When markets opened on Monday, GBP/CHF continued to slide and at the time of writing was trending near a low of 1.2486 – its worst level since mid-September 2017.
GBP Exchange Rates Shed Ground as Brexit Jitters Return
After a very brief surge in demand for the Pound in the middle of last week, Brexit uncertainties once again dragged the British currency lower when markets opened on Monday.
Investors had been buying the Pound from its cheapest levels last week, in a combination of profit-taking and hopes that an unprecedentedly close partnership for non-EU countries was possible between the UK and EU after Brexit.
EU Chief Negotiator Michel Barnier’s comments about a close relationship being possible gave the Pound a strong boost following weeks of falls on ‘no deal’ Brexit fears.
However, analysts warned that even if Barnier said the EU would offer such a deal, it did not mean it was likely and negotiations would remain highly reliant on how many concessions each side was willing to make.
On Sunday, fresh comments from UK Prime Minister Theresa May and Barnier caused fresh uncertainties about how smoothly Brexit negotiations were going, which was largely the cause for Monday’s Sterling fall.
PM May said that the UK government would remain steadfast on its Brexit blueprint, but Barnier indicated there were many parts of the plan that the EU would not be able to agree to.
In an interview with German newspaper Frankfurter Allgemeine Zeitung on Sunday, Barnier said:
‘They could stay in the single market, like Norway, which is also not a member of the EU – but they would then have to take over all the associated rules and contributions to European solidarity. It is your choice.
But if we let the British pick the raisins out of our rules, that would have serious consequences.
Then all sorts of other third countries could insist that we offer them the same benefits.’
As well as concerns about obstacles in Brexit negotiations, the Pound was weighed by the latest UK manufacturing data.
Britain’s August manufacturing PMI from Markit was forecast to come in at 53.8, but instead fell to 52.8.
This was the worst level in two years, and indicated that UK factory work was being negatively impacted by both Brexit uncertainties and fears of US trade protectionism.
CHF Continues to Benefit from ‘Safe Haven’ Demand despite Central Bank Concerns
As the Swiss Franc is a ‘save haven’ currency, it has been highly appealing in recent months due to global market uncertainties about US trade protectionism, as well as political uncertainties in emerging markets.
Against the Pound, the Swiss Franc has been performing even more strongly than the US Dollar. Consistent market demand for the Franc as a ‘safe haven’ has helped to push GBP/CHF to near its worst levels in almost a year.
The Franc has been continuing to climb on ‘safe haven’ demand, despite caution from the Swiss National Bank (SNB) over the last month.
SNB Vice Chairman Fritz Zurbruegg said in August that the France’s strength justified loose monetary policy from the bank.
There has also been rising speculation that if the Franc continues to climb, the SNB may be pressured to intervene with forex markets in order to weaken the currency again.
GBP/CHF Forecast: Can the Pound Hold its Ground?
Brexit uncertainties are likely to keep pressure on the Pound to Swiss Franc exchange rate over the coming week, but if there are any optimistic developments or the Franc’s bullishness fades the pair could recover.
As GBP/CHF nears its worst levels in a year and the Franc continues to climb, it may not take much to put an end to the Franc’s bullish streak.
Switzerland’s August Consumer Price Index (CPI) inflation rate report will be published on Tuesday, followed by Q2 Gross Domestic Product (GDP) growth data on Thursday.
If either of these reports disappoint investors, investors may become more concerned that the Swiss Franc is overvalued and this could lead to Franc weakness.
Britain’s key services PMI report from August will be published on Wednesday and could give the Pound stronger support if it impresses investors.
However, overall the Pound to Swiss Franc exchange rate will most likely continue to be driven by Brexit developments and risk-sentiment.
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TAGS: Pound Swiss Franc Forecasts