Top Story

GBP/CHF one to watch ahead of BoE, SNB

After the UK’s Consumer Price Index inflation data for August came out higher than expected on Tuesday, speculation that the Bank of England would be taking on a more hawkish stance during Thursday’s monetary policy decision boosted the British pound dramatically against other currencies. On Wednesday, however, the UK’s average earnings index (3-month average ending in July, compared to the same period a year earlier) fell short of expectations at 2.1% against a prior consensus forecast of 2.3%. This put somewhat of a damper on the hawkish BoE thesis, prompting the pound to pare some of Tuesday’s gains. Despite the lower-than-expected wage growth, however, other aspects of the jobs data beat expectations, including another multi-decade low in the UK unemployment rate and a surprise decrease in unemployment claims for August.

While the mixed data outcomes between Tuesday’s consumer inflation beat and Wednesday’s wage growth miss contribute increased uncertainty regarding the tone and stance of Thursday’s Bank of England decision, one thing should be much clearer. The Bank of England is highly likely to be significantly more hawkish, at least, than the Swiss National Bank, which also issues its monetary policy assessment and Libor rate decision on Thursday. While neither central bank is expected to make any interest rate changes at this time, the contrast in stances between the BoE and SNB has been rather clear. Amid a global trend of increasing hawkishness and monetary policy tightening from several major central banks, the SNB stands rather lonely in its continued dovish leanings, especially given its severe and ongoing concerns over the strength of the “significantly overvalued” Swiss franc against the dollar. At least the BoE is potentially much closer to tightening its monetary policy than the SNB.

In the run-up to these two central bank decisions scheduled for Thursday, sterling has been rallying for at least the past two weeks, and GBP/CHF has been boosted sharply by this run. The currency pair has spent the past two weeks rising in a steep trajectory from around the 1.2200 support area. If Thursday’s BoE and SNB decisions further highlight the contrast in stance between the two central banks, GBP/CHF could have significantly more room to rise. With any such continuation of its bullish run, the currency pair continues to target its next major resistance objective around the 1.2900 level.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.