Trading GBP/CHF

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Tobias Robinson

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William Berg

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The GBPCHF is a popular forex pair among UK investors. The Swiss Franc is a major currency and legal tender in Switzerland and Lichtenstein. Globally, it is the fifth most traded currency, following the US Dollar, Euro, Japanese Yen and British Pound Sterling. Having an understanding of what influences the exchange rate of the Swiss Franc is essential to be able to invest in the GBPCHF. See our guide to using technical analysis on live price charts and reading today’s FX news on the currency pair.

GBPCHF Explained

The Swiss Franc (CHF) to the Great British Pound (GBP) exchange rate varies throughout the trading day. When the Swiss economy is strong the Franc typically rises against the pound. When weakened, the Franc will fall vs Sterling. The exchange rate also fluctuates with major political events such as Brexit. In fact, the uncertainty surrounding Brexit and the economic environment means the outlook of the GBPCHF pair is difficult to forecast in 2026.

GBPCHF Influences

Economic Events

Major economic events such as the European debt crisis, along with its ability to appreciate in times of turmoil, has led to the CHF being seen as a safe haven currency. Switzerland’s resilient economy has been known to withstand crises that have troubled other financial markets. In 2008, whilst the world was in the throngs of a global recession, many looked to Swiss banks to keep their capital safe. The influx in demand led to a significant increase in the value of the Franc.

Another factor is Switzerland’s political independence and low national debt. When compared to the European national debt crisis, the quoted price of the Franc was boosted further. How independent the UK becomes as it leaves the European Union and balances debt from COVID-19 will have a substantial impact on the value of the GBPCHF.

Inports & Exports

Exports form the backbone of the Swiss and UK economy and impact the value of the GBPCHF. Key Swiss exports include pharmaceuticals, watches and instruments while key UK exports include cars and turbo-jets. When the Swiss Franc remains low its exports are competitive. However, when it rises, its exports become more expensive which in turn reduces demand. A low Franc versus the Pound is important for Switzerland’s economic growth and prosperity.

A high GBPCHF exchange rate can cause issues for its neighbours too. Since 2008, the Swiss Franc has doubled in value. This has had seismic implications for many Polish homeowners, whose mortgages were, until recently, held in Swiss Francs. The increase in the value of the Swiss Franc saw their debts soar. Again, this impacted Swiss Franc conversions into Pounds.

Policy

The strength of a currency is largely dependent on the rulings of key policymakers such as national banks, which influence monetary policy. In the case of CHF, this is the Swiss National Bank (SNB). In the UK, actions by the Bank of England (BoE), such as quantitive easing, impact the value of the GBPCHF.

At times the SNB has intervened to weaken the Franc. In 2011, the SNB reduced interest rates. It lowered the value of CHF relative to the Euro by removing the peg of 1.20 Francs per Euro. The move saw a devaluation of CHF by 8%. To achieve this, the SNB bought large sums of foreign money, in doing so it increased its foreign currency reserves to an all-time high.

In 2015, the SNB lifted the cap. As a result, the Swiss Franc’s value rose by 30 percent vs the Euro and 25 percent against the US Dollar. However, at around the same time, the SNB also adopted a policy of negative interest rates. Interest rates were pushed to -0.75%. The negative rates were designed to deter investors from stashing their capital in Swiss bank accounts as they had done in 2008. Low demand keeps the valuation of the Franc low, and most importantly, the price of exports low.

Interest Rates

Switzerland’s overnight interest rate is the lowest in the world and notably lower than the UK’s. This makes it an attractive proposition for forex trading. In a strong global environment, the Franc is often the go-to choice for many traders, used as the short leg when buying currency with high-interest rates. It is a strategy known as carry trading. The borrowing sees a reduction in demand for the CHF because it is effectively being sold, which in turn decreases its value.

The reverse is also true. When the global market is weakened, you often see increased buying activity of GBPCHF because traders are looking to unwind their carry trades. An example of which was seen in 2008, at the peak of the financial crisis.

Other factors impacting the price of the GBPCHF include:

• Economic growth
• Political instability
• Interest rates and inflation rates
• European market turmoil
• Market sentiment

It is worth staying abreast of global news to retain a market edge when investing in the GBPCHF. Today, there is a multitude of resources available to traders including forums, currency converters, inflation calculators, price graphs and more.

History Of The Swiss Franc

The Swiss Franc was formally recognised as Switzerland’s national currency in 1850. It was then decided that only the federal government would be allowed to issue Swiss Francs, including banknotes (bills) and coins. Fast forward to 1865, when Switzerland joined the Latin Monetary Union. The union was established between Switzerland, France, Belgium and Italy and at the time the values of all four currencies were pegged to the value of silver. When Switzerland joined it debased the silver coins from 90% to 83.5% silver, except for the 5 Francs coin, which retained its 90% purity.

The Bretton Woods rate of exchange scheme included the Swiss Franc and the system remained in place until the early 1970s. Following revaluation, up until May 2000, the price of the Swiss Franc was unpegged and backed by the value of the gold coin. Even today, the Swiss Franc is strongly linked to the gold standard. This because a high proportion of Swiss money is backed by gold reserves. A crash in the price of gold would have big repercussions for the value of the GBPCHF.

Final Word On Trading GBPCHF

2020 saw the Swiss Franc jump from strength to strength, outperforming the Pound, Dollar and Yen. Looking ahead, Brexit and global financial uncertainty will have an impact on the price of the GBPCHF. Given CHF’s close ties to the Euro, savvy traders will keep an eye on the stability of Europe. Traders should also be wary of interventions from the UK’s BoE and Switzerland’s SNB.

Find out more about forex trading.

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