GBP/CHF at 50-Year low: Now What?

GBP/CHF reached the lowest level since 1973 last week as the Swiss franc’s safe-haven appeal drives its outperformance against the struggling pound.

The Swiss currency briefly surpassed the March 2020 high of 1.1100 francs to the pound, tagging 1.1096 before a modest bounce.

The Swissy strength this year has helped it appreciate 11% against the Sterling year-to-date, extending the gains since the Great Financial Crisis (GFE) in 2008 to 55%.

Fueling the pound’s underperformance is inflation. The UK’s annual inflation rate is forecast to exceed 20% next year.

Analysts at Goldman Sachs and Citibank have recently released worrying reports on the prospects for the UK economy. The embargo on Russian iil and gas is crippling the Eurozone and the UK. Although reliant on Russian gas, Switzerland consumes far less per capita than the UK. Subsequently, inflation in Switzerland is around 3% on an annualized basis. As such, the swiss economy is better placed to weather the fallout from Russia’s invasion of Ukraine.

Another boost for CHF is its traditional safe-haven appeal. The Swiss franc, along with the US dollar, and to some extent (although not recently), the Japanese yen, tends to do well in times of crisis. For this reason, the swiss franc has seen an influx of capital as the global economy slowed this year. By contrast, investors continue to pull money from the UK as the economic outlook deteriorates further.

So what happens to Sterling from here? Can we expect more of the same, or will the pound’s weakness attract some speculative buying?

Sterling to Swiss Franc Forecast

The weekly price chart paints a dim picture for GBP/CHF. The rate is in terminal decline, with the sell-off accelerating below the former support at 1.1540. However, we are seeing some stability at the long-term (and former 47 year low) at 1.1244 (2020 low). Nonetheless, the pound is likely to breach 1.1244 in the near future.

Notably, the Relative Strength Index (RSI) is deep into oversold territory. Taking this into account, buyers may view the current price as an attraction entry level. Although, considering the pound’s weak fundamentals, buyers will likely reverse positions, should GBP/CHF breach the recent lows.

For now, the pound is holding above key support. For this reason, our near-term view is neutral. However, a weekly close below 1.1244 will suggest the pound will weaken further against the Swiss franc.

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GBP/CHF Price Chart