UBS’s latest comments on the currency pair point to a range trading outlook in the near term, with its analysis highlighting the contrasting monetary policies of the Swiss National Bank and the Bank of England.
The bank noted that the Swiss National Bank is nearing the end of its interest rate cutting cycle, while the Bank of England has just started its easing cycle this month and is expected to continue gradually cutting interest rates until the end of 2025.
The Swiss National Bank, which started cutting interest rates before many of its peers, is expected to make a final cut in September before concluding its easing cycle. By contrast, the Bank of England’s recent rate-cutting push is expected to be implemented gradually, with cuts every quarter.
The difference in the timing of central bank actions is seen as a factor that could impact GBP/CHF rates, potentially narrowing the yield spread and providing some support to the Swiss franc against the pound.
Despite the Swiss National Bank being close to completing its rate cuts and the Bank of England continuing its cuts, UBS notes that strong UK service sector inflation and strong economic data from both the business and consumer sectors could mean that future rate cuts by the BoE will be moderate.
UBS expects GBP/CHF to continue trading around recent levels over the coming quarters, with 1.11 representing the midpoint of the expected range. The currency pair has broken through key support levels during the recent sell-off, and UBS advises investors to watch support at 1.07 and 1.06, with resistance at 1.15 and the May high at 1.1670.
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