Pound-Franc Overbought In Wake of Inflation-inspired Spike

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The Swiss Franc selloff accelerated following the release of a below-consensus inflation report that raised the odds of further interest rate cuts from the Swiss National Bank (SNB).

The Pound to Franc exchange rate is 0.45% higher on the day at 1.1469, the highest level since June 2023, after Swiss CPI fell to 0% month-on-month in March from 0.6%, easily undershooting expectations for 0.3%.

This took the annual rate to just 1.0% from 1.2%, missing expectations for 1.3%.

"Weak Swiss inflation renewed the downward momentum of the franc," says Alex Kuptsikevich, market analyst at FXPro. "Fresh inflation data reinforces expectations of further policy easing. The franc has fallen for the past nine consecutive weeks."

The Franc has devalued significantly in 2024, with losses accelerating following a decision by the SNB to cut interest rates in March.

The selloff now takes the Pound-Franc exchange rate into overbought territory, with the Relative Strength Index (RSI) now reading at 71.29, where a reading above 70 signals overbought and raises the odds of a pullback.

However, we note that pullbacks in 2024 have tended to be shallow and are more likely to resemble consolidations of any previous gains. This is understandable, given that the fundamental story has shifted so decisively towards CHF's weakness.

The Dollar-Franc exchange rate is 0.20% higher at 0.9040, and the Euro-Franc exchange rate is half a per cent higher at 0.9834. "The inertial upward movement in EURCHF could continue in the coming days or weeks, bringing the pair closer to parity," says Kuptsikevich.