Pound-Franc Hits 2-Week Lows As CHF Secures Net Gains
The Swiss franc has posted renewed gains on Tuesday with the Pound to Swiss franc (GBP/CHF) exchange rate retreating to 2-week lows just below 1.1430 and compared with a peak of 1.1675 last week which was the highest reading since August 2022.
The Swiss franc has held firm in global markets and the Pound has been hampered by a further retreat in equities.
Although the latest Swiss inflation data was in line with expectations, the Swiss franc gained net support on a dip in expectations that there would be a further interest rate cut in June.
Global risk conditions have also been significant with a less confident tone and losses in equities with the FTSE 100 index posting fresh losses and sapping Pound support.
Swiss consumer prices increased 0.3% for May, in line with consensus forecasts with the year-on-year inflation rate holding at 1.4% and also meeting market expectations.
According to the data the monthly increase in prices was due to several factors including rising prices for housing rentals and for international package holidays.
Last month’s inflation data was significantly higher than expected at 1.4% compared with expectations of 1.1% which triggered a shift in expectations surrounding Swiss National Bank (SNB) interest rates and also supported the franc.
The SNB will hold its next policy meeting on June 20th. After a surprise cut at the March meeting, there has been speculation that the SNB would cut rates again in June.
This speculation has faded given the inflation data and SNB comments.
Danske Bank commented; “The print today is the final one before the SNB meeting on 20 June, and with a recent topside surprise in inflation in April, stronger than expected growth, a weaker CHF and recent comments from SNB President Jorden, a cut at the June meeting no longer remains a done deal.”
MUFG notes that the SNB’s own projections forecast that the inflation rate will decline to 1.2% in 2026.
It commented; “So based on their own forecasts there is certainly scope for further cuts and with the ECB cutting in June, SNB action would make sense.”
Late in May, however, SNB Chair Jordan warned that currency weakness was having an impact on inflation.
In this context, according to MUFG; “These comments do not appear consistent with a cut in June and we now assume a hold with cuts to come in Sept & Dec but this decision looks a close call.”
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