Swiss Franc weakens versus Pound Sterling after UK data surprises
|- The Swiss Franc takes a step lower versus the Pound on Thursday after UK data beats expectations.
- UK lending and services data both come out higher, suggesting less pressure on the BoE to cut rates.
- The safe-haven Swiss Franc weakens after strong US and China data increases investor risk appetite.
The Swiss Franc (CHF) fell against a strengthening Pound Sterling (GBP) on Thursday after risk sentiment improved on the back of strong global macroeconomic data, in particular data from the United Kingdom (UK).
Overall – and despite simmering geopolitical tensions – the positive boost to investor risk appetite from the figures was not as advantageous for the safe-haven Swiss Franc as the risk-sensitive Pound.
The day started with China recording a higher-than-expected Services PMI for December showing the world’s second largest economy holding its form. This was followed by stronger-than-forecast US labor market data.
Sterling rose in most pairs on the back of strong lending data, which showed people continuing to borrow and take out mortgages, seemingly unfazed by higher interest rates. A strong Services PMI result seemed to turn the tables on the somewhat negative narrative that has bedeviled the UK economy since growth data was revised down to show a contraction in GDP in Q3.
Daily digest market movers: Swiss Franc weakens versus Pound Sterling after UK data surprises
- The Swiss Franc weakens versus the Pound after global macroeconomic data gives investors cause for optimism on Thursday.
- Safe-havens like Gold and the Swiss Franc take a hit whilst risk-on currencies like Sterling rise.
- China Caixin Services PMI rises to 52.9 in December, easily beating estimates of 51.6 and November’s 51.5. Eurozone Services PMI is equally positive.
- US private payrolls data beats estimates, with ADP Employment Change showing the economy added 164,000 new employees in December, against 115,000 expected. In November, 101,000 were added.
- UK lending data seems to suggest borrowers are still taking out loans despite higher interest rates.
- Net Lending to Individuals rises GBP 1.9B in November, beating forecasts of GBP 1.6B; Consumer Credit shows a GBP 2.005B increase when GBP 1.400B had been expected; and Mortgage Approvals rise 50.067K when compared to the expected 48.500K.
- The robust lending data suggests there will be less pressure on the Bank of England (BoE) to bring down interest rates in order to stimulate an economic recovery.
Swiss Franc technical analysis: GBP/CHF breaks down, remaining in bearish long-term trend
GBP/CHF – the number of Swiss Francs that one Pound Sterling can buy – shows a small recovery this week despite the overall bearish tenor of the chart.
The pair is arguably in a downtrend on the weekly chart below despite a recovery taking place on the daily and intraday charts.
Pound Sterling vs Swiss Franc: Weekly Chart
GBP/CHF has broken below the lower line of a falling channel or range-bound consolidation that has been forming since 2022. If the break holds, this suggests a risk the pair could fall to 1.0400 eventually, which is the 61.8% extrapolation of the range to the downside. A break below the 1.0637 lows would signal a continuation down towards that target.
The pair may be encountering resistance from the lower boundary of the wedge/range at the current market level as it rises back up to it after the breakdown last week.
The MACD momentum indicator is showing a decline in line with price, which supports the longer-term bearish picture.
Pound Sterling FAQs
What is the Pound Sterling?
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data.
Its key trading pairs are GBP/USD, aka ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
How do the decisions of the Bank of England impact on the Pound Sterling?
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.
When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
How does economic data influence the value of the Pound?
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP.
A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
How does the Trade Balance impact the Pound?
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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