Swiss Franc Decline Stretches Its Legs
- Written by: Gary Howes
-
The Pound to Franc exchange rate is forecast to test 1.1206 and then 1.15.
The outlines of an extended decline in the Franc are becoming clearer as the Swiss National Bank (SNB) wages a battle against deflation.
The Federal Statistics Office reported a negative inflation print for May (-0.1% y/y), confirming that the central bank's battle against inflation is over, and expanding the scope for a cut in interest rates into negative territory.
"Given the SNB's target of inflation between 0% and 2%, the negative inflation rate is likely to prompt the SNB to consider further monetary easing measures to stimulate the economy and bring inflation back within its desired range," says Shane Strowmatt at LGT Bank.
| 5% | ... More Currency Achieved on Our Transfers Than a Typical Bank Delivers. |
 | Get Your Quote |
The Swiss franc lost 0.7% versus the U.S. dollar on Tuesday, as markets grasped the implications of the inflation print. It lost 0.66% against the Pound and 0.22% against the Euro.
From here, the prospect of an expansionary Swiss monetary policy stance will likely further weigh on the Franc, as it will prove particularly vulnerable to currencies where inflation is rising.
Notably, Britain's inflation rate could peak at 3.5% in the third quarter of 2025, says the Bank of England, an outcome analysts say diminishes the scope for future interest rate cuts. This leaves UK interest rates with a yawning advantage over those in Switzerland, creating favourable flows for the Pound-to-Franc conversion.
Above: GBP/CHF at daily intervals.
The above chart shows Pound-Franc has been trending higher since the volatility-induced slump that followed the fallout from Donald Trump's April 02 Liberation Day tariffs.
Further gains are likely if the U.S. inks new trade deals and solidifies the trade agreement it reached with China in May.
This, combined with the prospect of an expansionary Swiss monetary policy, opens the door to 1.1206 in GBP/CHF ahead of a longer extension back towards the 2025 highs at 1.15 during the second half of the year.