The Pound (GBP) has staged a recovery against the Swiss Franc (CHF) today, although mainly down to Franc weakness.
The Swiss currency fell in value after the KOF leading indicator was reported to have fallen in May.
This indicator measures levels of optimism among Swiss business leaders and was doubly disappointing for CHF traders.
As well as April’s reading being revised down, May’s printing of 100 points was the lowest level since December 2015.
(Last updated 30th May, 2018)
Rising UK Services PMI could Trigger GBP/CHF Exchange Rate Advance
The Pound’s potential saviour will be the services PMI reading for May, which is predicted to show higher monthly activity when it comes out on 5th June.
The services sector is considered more important than other sectors, as it covers areas like tourism and financial services.
As such, an as-forecast or even greater rise in services sector activity during May could be enough to reverse recent GBP/CHF exchange rate difficulties and boost the Pound.
CIPS Group Director Duncan Brock has given a forecast for May’s services sector reading, saying:
‘As business optimism has bounced back from last month’s nine-month low, there’s hope that the [services] sector’s efforts with new product launches and competitive marketing will keep the wolf from the door.
But if household incomes are being squeezed and pay rises are dawdling behind the cost of living, consumer-facing businesses are likely to find it difficult to tempt UK citizens to start spending again.’
Swiss Franc to Pound (CHF/GBP) Exchange Rate Volatility Forecast on GDP Stats
The Franc (CHF) has made gains against the Pound (GBP) recently, but remains at risk of seeing turbulence later this week.
The data to watch out for will be GDP growth rate stats for the first quarter, which are predicted to show slower quarter-on-quarter growth but annual acceleration.
Faster annual GDP growth may be enough to trigger a Franc to Pound (CHF/GBP) exchange rate rally, for the near-term at least.
Is CHF/GBP Exchange Rate Turbulence ahead on Banking Reforms?
Another less solid factor that might affect the future Swiss Franc to Pound (CHF/GBP) exchange rate will be the result of a referendum on banking reform.
At stake is whether national banks can continue to lend more money than they have in reserve.
If the Vollgeld reform is passed, it could be a lot harder to borrow money within Switzerland because of a landmark change to national lending laws.
The text of the Initiative describes the changes as:
‘The Swiss National Bank alone will be able to create electronic money.
‘Banks won’t be able to create money for themselves any more, they’ll only be able to lend money that they have from savers or other banks, or even, if necessary, money that the Swiss National Bank has provided them.’
Not everyone is on board with the plans – the Swiss National Bank (SNB) has said:
‘There is no fundamental problem that needs fixing. A radical overhaul of Switzerland’s financial system is inadvisable and would entail major risks.’
If passed, the Vollgeld reform could cause a sharp decline in the value of the Swiss Franc (CHF) and lead to a loss against the Pound (GBP).
While a new banking system might make lending safer, it could also severely restrict national economic growth and lead to reduced international competitiveness.