The ‘safe haven’ Swiss franc has weakened across the board since the US have eased their stance on Chinese tariffs and global risk has reduced. Historically, the Swiss franc strengthens when investors grow fearful of global risks and weakens in times of global confidence.
Having said this, current global risk could be seen as rising due to the civil unrest in Hong Kong, political and economic uncertainty in Argentina and heightened Brexit risks in the UK, of course not forgetting the US-China trade wars may potentially escalate in the future. The issues in Hong Kong is seen as a major global risk as the Chinese government could intervene to restore order which in turn could raise tensions in the area and may cause a potential geopolitical fallout between Beijing and the rest of the world.
The Swiss National Bank (SNB) have shown signs of interfering with the market to weaken the franc. Reuters have said “Sight deposits rose by 2.77 billion Swiss francs (£2.36 billion) in the week to Aug. 9, suggesting the SNB had stepped up intervention on foreign exchange markets to rein in the safe-haven currency”. If this is the case, we could see some rest bite for the pound against the franc and slow the aggressive trend of pound weakness. The SNB may have to tread carefully, as being branded a currency manipulator has consequences including sanctions on the country in question by the US.
The Swiss franc has enjoyed continued strength against the pound since May earlier this year and the outlook continues to be bearish over the medium term and a breakthrough of the lows of 1.1675 could see the pair drop to the next target of 1.15 on the interbank exchange we last saw in October 2016.
If you would like to know more about the Swiss franc currency, feel free to contact a member of the FCD team and speak to one of our currency specialists.
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