- The Swiss Franc declines versus the Pound Sterling after BoE governor Bailey insists on significance of lowering inflation.
- Bailey said households were coping better than expected and wages were rising.
- The GBP/CHF gains for seventh consecutive day, extending its recovery.
The Swiss Franc (CHF) weakens against the Pound Sterling (GBP) for the seventh day in a row on Wednesday as the Governor of the Bank of England (BoE), Andrew Bailey, testifies before members of Parliament at the UK Treasury Select Committee.
Overall market sentiment is positive, with the Dow Jones Industrial Average and S&P 500 both edging higher at the time of writing. This marginally aids the Pound more than the safe-haven Swiss Franc.
Daily digest market movers: Swiss Franc trades lower versus the Pound Sterling as Bailey emphasizes inflation prerogative
- The Swiss Franc loses ground against the Pound as BoE’s Bailey reiterates the importance of returning inflation to target at a Treasury Select Committee meeting.
- UK households with mortgages are nowhere near as stretched as during the global financial crisis and household incomes in the UK have risen in recent months, says Bailey.
- This suggests the BoE is unlikely to cut interest rates anytime soon, a stance that contrasts with most other central banks, including the Federal Reserve, which is eyeing cuts in 2024.
- The Chairperson of the Swiss National Bank (SNB), Thomas Jordan, however, sidestepped questions from journalists about when and whether the SNB was considering cutting interest rates in Switzerland at the December meeting of the bank.
- The two central banks have similar stances at the moment, although inflation is higher in the UK, perhaps indicating the Pound could strengthen longer term.
Swiss Franc technical analysis: GBP/CHF short-term recovery extends
GBP/CHF – the number of Swiss Francs (CHF) that one Pound Sterling (GBP) can buy – rises for the seventh consecutive day, extending the short-term recovery rally.
The pair is in no clear trend on any time frame, however, and despite the recovery rally entering its seventh day, even the short-term trend is debatable.
Pound Sterling vs Swiss Franc: 4-hour Chart
Analyzing GBP/CHF’s short-term trend using the 4-hour chart gives a mixed picture. Whilst the peaks and troughs are rising in a month-long series of higher highs and lows ever since the late November lows, the pair still has not broken above the critical 1.0900 level (last key lower high of the prior downtrend), which would provide more confidence that the trend had flipped from down to up.
The Relative Strength Index (RSI) is rising in line with price, suggesting the uptrend retains underlying strength. It has not entered the overbought region, which would indicate a growing risk of a pullback.
A further indication of strength is that it has broken above the 50 and 100 four-hour Simple Moving Averages (SMA).
That said, the speed of the move higher since the November lows has been rather slow when compared to the down move that preceded it – a sign this recovery could merely be a pullback within a broader downtrend.
A break below 1.0794 would suggest a recapitulation and the beginning of a new leg lower. A break above the day’s highs would suggest a continuation higher to just below the key 1.0900 level. A break above that would confirm a change in trend and more upside.
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
The Swiss National Bank (SNB) meets four times a year – once every quarter, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.