GBP/CHF Falls as Sterling Weakens

Sterling Struggles Ahead of Mark Carney Appointment as BoE Governor

The pound has been on the back foot over the last 10 days in anticipation of Mark Carney taking over the reins at the Bank of England. It’s widely expected that the Canadian will adopt an aggressive monetary easing policy in an attempt to kick-start growth in the UK economy.

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Pimco, the world’s largest bond house, has warned that Mark Carney will attempt to devalue the pound by as much as 15% in a last ditch effort to cement the UK recovery as it’s feared that growth in Britain is going to remain stagnant for the next three to five years as the government continue to shrink the public sector in an effort to reduce the budget deficit. It seems that the only policy tool left for the government to use is that of currency manipulation, devaluing sterling in the hope that it encourages exports. A weaker pound would also encourage UK companies to source supplies from within the UK, stimulating demand for UK products as foreign goods would become more expensive.

The Chancellor of the Exchequer, George Osborne, is pinning his hopes on Mark Carney to live up to his reputation as a monetary activist by pursuing a fairly aggressive monetary easing policy, ie. through quantitative easing to try and stimulate an export-led recovery rather than relying on consumer spending.

“I think a lot of what Mark Carney is going to do – clearly he’s not going to state this upfront – is to try and keep sterling certainly from going up and, probably, he’s going to want to see it go lower,” Mr Amey, of Pimco, said. “On a trade weighted basis I think another 10pc to 15pc is manageable.

Quantitative Easing will almost certainly weaken sterling as it is essentially a money printing programme. Of course, flooding the economy with freshly printed sterling will inevitably lower its inherent value, weakening the currency making domestic products cheaper for foreign buyers. The last time an additional round of Q.E. was announced sterling weakened significantly. The same can be said for the dollar when the Federal Reserve announced their aggressive policy. As a result, sterling has already begun losing ground against its major counterparts, including the Swiss Franc.

On the Swiss side of things the Franc has recently been supported by defensive demand, benefitting from its status as a safe-haven currency. However, demand has been kept in check by concerns that the Swiss National Bank may indeed lower its euro minimum level to 1.25 in an attempt to increase competitiveness.

Considering the continuing uncertainty in Switzerland, the eurozone and the UK, now may be the time to assess your options if you need to buy or sell Swiss Francs over the coming months. Contact me today by filling out the enquiry form on the right to find out how you can limit your exposure to adverse movements in the currency markets.