GBP/CHF Remains Rangebound
The GBP/CHF cross has moved little over the last few weeks as economic data has been thin on the ground, with market players awaiting the next big central bank move before committing to their next positions. The graph below shows GBP/CHF movement over the last seven days; the difference between the high and low is roughly 0.6%.
Swiss CPI figures released on Thursday morning missed estimates, with the year-on-year inflation rate lower than expected. Analysts had forecasted a price rise of 0.1% but the actual figure showed that consumer prices had not risen at all over the course of the last year. The figures should be considered disappointing as most central banks will aim to keep inflation rates between 2-3%. However, the month-on-month inflation report actually came out as expected at 0.1%. This was down from the March figure of 0.4%. Slowing inflation is a problem that the major central banks in Europe are all facing, with Mario Draghi facing a similar challenge at the ECB. With interest rates already at record lows, there is little scope for an adjustment in monetary policy to tackle this problem.
The Swiss unit actually strengthened slightly prior to release but was little changed once the figures had been published. The franc would usually have weakened after such an announcement but the currency is benefitting from defensive safe-haven demand as the political uncertainty in Ukraine continues to dominate global risk sentiment. Data released by the Swiss National Bank on Wednesday recorded in SNB currency reserves in April, suggesting there has been litttle pressure on the minimum euro level and that there has been no significant franc selling. This has been highlighted in the movement of exchange rates, with GBP/CHF trading within a fairly tight range over the last couple of weeks.
On the sterling side of the cross the pound is still performing well as UK economic data releases indicate the economic recovery seems finally to have taken hold. GDP figures released by the Office for National Statistics at the end of April showed the UK economy had grown by 0.8% in the first quarter of 2014. The data showed the economy economy has now been in positive territory for five consecutive quarters, the longest period of economic growth since the financial crisis began. The economy is now only 0.6% smaller than it was before the start of the economic meltdown. Chancellor George Osborne said of the figures:
“The impact of the Great Recession is still being felt, but the foundations for a broad based recovery are now in place….., the biggest risk to economic security would be abandoning the plan that is laying those foundations.”
The pound has been performing well against most of the majors as a result, touching 1.22 against the euro and 1.70 against the dollar, the highest levels in five years against the US currency.
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