Swiss Franc Gains Against Sterling as Italy Install New Prime Minister

GBP/CHF Falls After Breaching 1.46 Mark

The franc has made marginal gains against the UK currency after it was announced that Italy had finally installed a new Prime Minister, putting an end to the political uncertainty in the country. The euro strengthened as a result, pulling the franc along with it.

The new Premier, Enrico Letta, has said that the coalition will ease up on its harsh austerity measures in an attempt to drag the pivotal eurozone economy out of its downward spiral of recession and job losses. He gave his first speech to the Italian parliament on Monday, saying ‘Italy is dying from austerity alone, growth policies cannot wait’ and that the political establishment had ‘one last chance’ to tackle Italy’s deep economic and social woes.

The new Prime Minister faces an uphill struggle given the nature of his cabinet which consists of members of parties sitting on opposite sides of the political spectrum, describing his government as ‘David before Goliath-sized challenges’.

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The franc has also been buoyed by expectations of an interest rate cut at this week’s ECB policy meeting, increasing demand for the safe-haven currency despite expectations the Swiss National Bank would continue to maintain the 1.20 minimum euro level.

Thursday could prove to be an interesting day for the currency markets. It’s widely expected that the president of the European Central Bank, Mario Draghi, will announce a 25 bp cut to the refinancing rate, bringing it down to 0.5%, on par with Britain’s rate which is at a record low. It now appears that the eurozone’s economic woes have spread to the core nations with Germany recently posting poor economic figures. There has been speculation of an interest rate cut for some time but it now looks as though there is no alternative. Inflation conditions are benign with lending conditions in the eurozone remaining tight. It’s expected that a cut to rates will weaken both the euro and the franc initially but the impact will be limited.

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