GBP/CHF edges lower as Swiss Franc continues to outperform

GBP/CHF edges lower on Tuesday, trading in the 1.1090s as it continues rolling over from the 1.1237 August 19 high. 

The pair weakens despite the Pound Sterling (GBP) strengthening in most of its pairs after the release of UK employment data. Although UK wages softened in July, they remained relatively high at 5.1% (excluding bonuses) and 4.0% (including bonuses). 

In addition the UK Unemployment Rate remains at 4.1% which is below the Bank of England’s (BoE) 4.4% forecast. The Claimant Count fell, showing less people signed on for benefits. Although wages shrank, they remained above inflation. According to some economists the data might have made it slightly harder for the BoE to ease policy, normally a negative factor for the currency. 

“GBP is firmer versus EUR and USD. The UK July labor market data should keep the BoE cautious from easing too aggressively,” said Brown Brothers Harriman in a note after the release. “The policy-relevant private sector average weekly earnings ex-bonuses fell four ticks to a 26-month low at 4.9% y/y but still tracking a little above the BoE’s Q3 projection of 4.8% y/y. ..The swaps market continues to imply almost 50 bps of BOE rate cut by year-end, which seems about right,” the note went on.

Against the Franc, however, Sterling fell as the Swiss currency retains its strength. A combination of safe-haven flows because CHF is viewed as a solid store of value, a favorable trade surplus, and an all-round strong Swiss economy are all factors supporting the Franc. Swiss Gross Domestic Product (GDP) saw a quarterly rise of 0.7% in the second quarter, beating market forecasts of 0.5% and Q1’s 0.5%. It was the highest such rise since Q2 of 2022. 

The Swiss Franc continues rising even though the Swiss National Bank (SNB) was the first major central bank to cut interest rates in this easing cycle. It cut once in March and again in June, with speculation it could cut again because of continued cooling of inflation. 

Complaints from Swiss exporters who claim the strength of CHF is making them uncompetitive have put pressure on the SNB to directly intervene in FX markets to weaken the CHF. Last week data revealed that the SNB’s Foreign Currency Reserves fell to CHF 694 billion in August, down from CHF 704 billion in July. This marks the fourth consecutive decline, suggesting the SNB continues selling the Franc to dampen its value.