Pound-Franc Forecast Lower in Coming Months

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The Pound to Franc exchange rate might be in rarefied air at current levels, with one Swiss private bank predicting it will fall over the remainder of the year.

Bank J. Safra Sarasin says there is some potential for further Swiss Franc weakness in the near term, but it forecasts the currency to recover over the course of 2024.

The call comes amid an ongoing selloff in the Swiss currency, which is linked in part to the Swiss National Bank's surprise interest rate cut in March.

"Year-to-date, the Swiss franc has weakened on the back of a widening Swiss yield disadvantage and following the SNB’s pivot at its March meeting. Weak macro data argues for a second rate cut in June, which should weigh on the currency in the near term," says Dr. Claudio Wewel, FX Strategist at Bank J. Safra Sarasin.

However, the analyst says the Swiss franc should benefit from a further retracement in global yields once central banks shift towards monetary easing, which diminishes the Swiss yield disadvantage.

"The SNB is likely to tolerate a strong franc, which effectively limits the inflation pass-through from abroad, but we see the possibility that the SNB intervenes in case the currency is appreciating too rapidly. An array of geopolitical tensions and a potential re-widening of peripheral government bond spreads in the euro area are additional upside risks," says Wewel.

Over the long term horizon Bank J. Safra Sarasin expects the franc's appreciation trend to carry on given its relative structural advantages, along with high current account surpluses and a strong net international investment position.

Regarding the Pound, Wewel says there is a chance the Bank of England will deliver more interest rate cuts in 2024 than what the market currently prices, which should push the currency a leg lower at some point.

"Moreover, pound sterling also looks highly valued in real terms, which argues for a retracement of the currency," says Wewel. Longer-term, he adds that the UK’s external and internal imbalances are set to remain a challenge for Sterling.

Bank J. Safra Sarasin forecast the Pound to Franc rate at 1.13 by the end of June, 1.12 by the end of September and 1.10 by the end of the year.

The Euro to Franc rate is tipped to slide to 0.96, 0.95 and 0.93 in this respective timeframe.