The Pound Sterling to Swiss Franc (GBP/CHF) exchange rate gave up most of its earlier gains toward the close of Friday’s European session as the ‘Swissie’s’ SNB Bombshell gains stabilised.
Thursday was a massive day for Swiss Franc movement (and by extension market movement in general) after the Swiss National Bank dissolved ties between the Euro and the Swiss Franc (EUR/CHF).
However, Thursday’s European Central Bank (ECB) monetary policy announcement could give more insight as to why the SNB seemed to bail quite hastily.
As well as the prospect of a large-scale quantitative easing plans being put into place, alternative hypotheses have been flying around the market.
As Raoul Ruparel notes for Forbes: ‘The other option of course is that this is a colossal misjudgement by the SNB, having significantly overestimated the impact of ECB QE. If that turns out to be the case then the credibility loss and political fallout which the SNB might sought to avoid with this move will almost certainly come to pass.’
Earlier… The Pound Sterling to Swiss Franc (GBP/CHF) exchange rate maintained gains in the second half of Friday’s European session after Thursday’s surprise cap abandonment from the Swiss National Bank (SNB).
In addition, Swiss Retail Sales figures contracted by -1.2% in November on the year, after October’s 0.6% growth.
Earlier… The Pound Sterling to Swiss Franc (GBP/CHF) exchange rate clawed back some losses from Thursday’s session after the Swiss National Bank (SNB) announced they were abandoning the Euro to Swiss Franc (EUR/CHF) 1.20 cap which has been in place since the global financial crisis.
However, the effect of such a move has seen speculation that something larger is at play, heighten.
Market analyst Chris Beauchamp stated: ‘My initial reaction was that it is a sign the ECB is about to do something, which makes it odd that the reaction has been so negative across European stocks. However, it’s not every day that a central bank pulls the rug out from underneath something in such a massive way, and clearly people are worried that there’s something bigger afoot.’
The Pound Sterling to Swiss Franc (GBP/CHF) exchange rate continued to dwell at a three-year low on Thursday after the Swiss National Bank (SNB) ended the three-year 1.20 cap for the Euro to Swiss Franc (EUR/CHF) exchange rate.
Meanwhile, the Pound Sterling to Euro (GBP/EUR) exchange rate hit a seven-year high on the news and could inspire more Sterling gains.
Currency strategist Kit Juckes stated: ‘This (SNB action) accelerates the Euro/Dollar down-trend. It may also improve the outlook for Sterling, extending Euro/Sterling weakness, if safe-haven flows into the UK are reinvigorated despite the political uncertainty of the coming months.’
Earlier… The Pound Sterling to Swiss Franc (GBP/CHF) remained bearish as Thursday’s session continued, after the Swiss National Bank (SNB) announced that it was removing the 1.20 tie in the EUR/CHF exchange rate.
Industry expert Nick Hayek commented: ‘Today’s SNB action is a tsunami; for the export industry and for tourism, and finally for the entire country.’
Earlier… The Pound to Swiss Franc (GBP/CHF) exchange rate plummeted in Thursday’s European trading after the Swiss National Bank (SNB) discontinued the tie between the ‘Swissie’ and the Euro (CHF/EUR).
The SNB decided to abandon the EUR/CHF ceiling of 1.20 Swiss Francs per Euro implemented at the height of the global financial crisis. In recent months the SNB have introduced negative interest rates, Thursday also saw these extended further.
The SNB previously stated that it would use all the policy measures at its disposal to defend the cap against the Euro as it would play an important part against deflationary pressures in the coming year.
However, the central bank appears to have reassessed the Euro to Swiss Franc (EUR/CHF) exchange rate situation and had a change of heart.
The SNB stated: ‘While the Swiss Franc is still high, the overvaluation has decreased as a whole since the introduction of the minimum exchange rate. The economy was able to take advantage of this phase to adjust to the new situation.’
‘Recently, divergences between the monetary policies of the major currency areas have increased significantly—a trend that is likely to become even more pronounced.’
The European Central Bank (ECB) is likely to begin a period of quantitative easing (QE) in the near future as a last-ditch attempt to revive the flat lining Eurozone—a development that could pressure the Euro significantly lower.
The SNB continued: ‘The Euro has depreciated considerably against the US Dollar and this, in turn has caused the Swiss Franc to weaken against the US Dollar.’
‘In these circumstances, the SNB concluded that enforcing and maintaining the minimum exchange rate for the Swiss Franc against the Euro is no longer justified.’
In addition to removing the 1.20 cap, the SNB lowered interest rates again. Unlike the UK, which is nearing Bank of England (BoE) interest rate rises, the Swiss economy dipped into negative interest rates in recent months to defend the EUR/CHF ceiling.
The SNB commented: ‘The SNB is lowering interest rates significantly to ensure that the discontinuation of the minimum exchange rate does not lead to an inappropriate tightening of monetary conditions.’
‘The SNB will continue to take account of the exchange rate situation in formulating its monetary policy in future. If necessary, it will therefore remain active in the foreign exchange market to influence monetary conditions.’
Pound Sterling to Swiss Franc (GBP/CHF) Exchange Rate Forecast
The Swiss National Bank’s surprise move is likely to continue sending ripples through the market on Thursday and therefore the Pound to Swiss Franc (GBP/CHF) exchange rate could be in for an extremely interesting day of trading.
Friday will see the release of Swiss Retail Sales figures, which previously resided at 0.3% in October on the year. With no other UK domestic data expected over the rest of the week, the Pound Sterling to Swiss Franc (GBP/CHF) exchange rate will be dependent on global developments for movement.
The Pound Sterling to Swiss Franc (GBP/CHF) exchange rate has seen a -18.33% movement at the time of writing, having fluctuated between the boundaries of 1.1524 and 1.5546. The Swiss Franc to Pound Sterling (CHF/GBP) exchange rate has been trending between the regions of 0.6426 and 0.8806.
