GBP/CHF Rises After Mervyn King Speech

Sterling Strengthens After Bank of England Inflation Report

The pound has continued its recent run against the Swiss currency today after a speech by the current Governor of the Bank of England, Mervyn King, in which he said that economic recovery is finally in sight. “It was not a typical recession and it will not be a typical recovery, nevertheless a recovery is in sight.”

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King reckons Gross Domestic Product, an aggregate of everything produced and consumed in the UK, will strengthen to a healthy half a percent in the next quarter, up from 0.3% for the first quarter. He’s forecasting a gradual improvement in the growth figures over the next 6 quarters and reckons that we may be exiting the worst slump since the Great Depression of the 1930’s.

It’s the first time the Central Bank has revised upwards its growth forecast since the current economic crisis began in 2008. The Bank’s optimistic Inflation Report comes after a recent consumer sentiment poll revealed that optimism over the UK’s economic outlook has surged, with 30% of the country’s population now expecting the country to be better off in 12 months time, up from 22% last month. George Osborne must be breathing a sigh of relief after 3 years of continuous gloom since the Coalition came into power.

The Bank also said that inflation was not rising as much as had intially been feared and that the interest rate would remain below one percent for at least another four years.

Despite the recent run of positive data, some economists are not convinced that we’ve seen the back of the recession. With one eye on his legacy and one on the economy, the temptation for Sir Mervyn to look for positives must have been overwhelming. The recovery may be ‘in sight’, but only if you’re looking through a telescope.

The rise in GBP/CHF is not entirely due to a strengthening pound. The franc has weakened significantly over the last week as investors move away from defensive assets. There is also still some specualtion that the Swiss National Bank are on the verge of raising the minimum euro level to 1.25 in an attemp to increase competitiveness. As a result, GBP/CHF has broken through the 1.47 mark and EUR/CHF was briefly trading above 1.25.
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