GBP/CHF lowers as Swiss franc continues to outperform

• GBP/CHF is trading marginally lower as the pound weakens against the franc.
• UK employment data was solid and led the GBP higher across its key pairs.
• GBP/CHF fell, however, due to resistance in the Swiss franc.

GBP/CHF is lower on Tuesday, trading in the 1.1090s as it continues to roll from the August 19 high of 1.1237.

The pair weakens despite sterling (GBP) strengthening across most of its peers following the release of UK employment data. Although UK wages softened in July, they remained relatively strong at 5.1% (excluding bonuses) and 4.0% (including bonuses).

In addition, the UK unemployment rate remains at 4.1%, which is below the Bank of England’s (BoE) forecast of 4.4%. The number of claimants fell, showing that fewer people signed up for benefits. Although wages have decreased, they have remained above inflation. According to some economists, the data could have made it slightly more difficult for the BoE to ease policy, normally a negative factor for the currency.

“GBP is firmer against EUR and USD. July UK labor market data should keep the BoE from easing too aggressively,” Brown Brothers Harriman said in a note after the call. “Policy-relevant average weekly private sector earnings ex-bonuses fell four ticks to a 26-month low of 4.9% y/y, but remain slightly above the BoE’s projection for third quarter of 4.8% y/y. ..The swap market continues to imply a BOE rate cut of close to 50 bps by the end of the year, which seems about right,” the note continued.

However, against the franc, sterling fell as the Swiss currency retains its strength. A combination of safe-haven flows as the CHF is seen as a solid store of value, a favorable trade surplus and a strong Swiss economy across the board are all factors supporting the franc. Swiss Gross Domestic Product (GDP) rose 0.7% quarter-on-quarter in the second quarter, beating market forecasts of 0.5% and the first quarter by 0.5%. It was the largest such increase in Q2 of 2022.

The Swiss franc continues to rise, even though the Swiss National Bank (SNB) was the first major central bank to cut interest rates in this easing cycle. It cut once in March and again in June, with speculation it could cut again as inflation continues to cool.

Complaints from Swiss exporters that the strength of the CHF makes them uncompetitive have pressured the SNB to intervene directly in foreign exchange markets to weaken the CHF. Data last week showed that the SNB’s foreign reserves fell to CHF 694 billion in August, down from CHF 704 billion in July. This marks the fourth consecutive decline, suggesting that the SNB continues to sell the franc to reduce its value.