Swiss Franc Benefits from Safe-Haven Demand

GBP/CHF Falls As Risk Appetite Shifts

The last couple of days have seen a marginal increase in Franc demand, triggered by weakness in commodities prices and falling equity markets. The ongoing speculation that the Swiss National Bank may raise the minimum euro level is having little impact in weakening the Swiss currency, although market players remain on high alert for any hints at a policy shift.

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Sterling’s had a rough couple of days after weak manufacturing production data revealed a 0.2% contraction in the manufacturing sector over the last month. The figures are a leading indicator of overall economic health as production reacts quickly to ups and downs in the business cycle and is correlated with consumer conditions such as employment levels and average earnings. 
The figures published by the Office for National Statistics dented hopes that a pick-up in industry would encourage balanced growth in the UK. The main factors behind the monthly drop, according to the ONS, were falls in transport equipment, wood and paper products and metals. However, they did say that in the three months to April manufacturing was actually up by 0.5% year on year and this should be considered a more accurate indicator of the underlying trend.
However, it wasn’t all doom and gloom as employment data on Wednesday revealed that jobless numbers declined by 5,000 in the three months to April as the economy returned to marginal growth. Figures released by the ONS showed that the total jobless number had fallen to 2.51 million and that the total number of people in employment had risen to 29.76 million, up 432,000 on a year ago. 
As a result, sterling gained around 0.4% against the Franc after the figures were released but gains were quickly erased with profit taking pushing sterling back down to the low 1.44’s.
Sterling has actually traded relatively flat against the Franc and the Euro over the last 3 months, remaining within a two cent range against the euro. We were expecting some market movement last Thursday with meetings by both the Bank of England and the European Central Bank but even a speech by Mario Draghi failed to cause any sort of significant movement. The European Central Bank announced that they would be keeping the interest rate at 0.5%, but would consider a negative deposit rate should conditions deteriorate further. Draghi was fairly pessimistic about the economic recovery in the eurozone but market reaction was muted. The Bank of England announced that they too would be keeping interest rates on hold and would not be increasing the level of monetary easing. The meeting was Mervyn King’s last at the helm with Mark Carney taking the reins early in July.
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