Image © SNB

The Swiss National Bank is once again a seller of the Franc as part of its monetary policy strategy, which potentially bodes well for GBP/CHF up ahead in light of Sterling’s high yield offering, and the UK’s inflation situation.

Switzerland’s Franc rose back near its January highs against most major currencies in early August and sight deposit data released on Monday suggests this led central bank to step in with fresh sales of the currency, and large purchases of foreign counterparts to combat the move.

“The data reveals the second largest build in sight deposits since April (the rise in Mid-East tensions) and the fourth largest build since 2023. This is significant and illustrates the SNB’s concerns about the overall impact on inflation and financial conditions,” BofA Global Research strategists said on Wednesday.

The increase in sight deposits to CHF 463.1 billion, from CHF 453.9 billion, confirms that recent purchases of foreign currency have been significant and far more so than in the opening quarter when the Swiss currency weakened of its own accord, and data showed the SNB sold only around 281 million Francs.

Above: GBP/CHF shown at daily intervals alongside USD/CHF and EUR/CHF.

Switzerland has reverted to sales of the Franc and purchases of foreign currency since December when the central bank ended roughly eighteen months of earlier interventions that had seen it buying the Franc in large quantities in order to strengthen its own currency and ward off imported inflation pressures.

Inflation has since fallen as low as 1% and been projected to remain subdued beneath 1.4% for the foreseeable future, prompting the SNB to cut interest rates in March and June, while seeking to weaken the currency. Currency trading is a well established part of the monetary policy toolkit in Switzerland.

“Our directional bias is for renewed weakness versus some of the main casualties of the recent position squeeze: lower CHF versus AUD, GBP,” BofA Global Research strategists said. “A slightly more defensive position for a weaker CHF is grind-higher trades in EUR/CHF and USD/CHF.”

The SNB’s current FX stance is potentially bullish for GBP/CHF and Sterling, which is one of the top five components of the trade-weighted Swiss exchange rate and also one of the top four holdings in the Swiss National Bank’s portfolio of official reserve assets, which is among the largest in the world.

Sterling could also benefit from its comparatively high yield offering relative to the Franc and other liquid G10 currencies, as well as the Bank of England’s continuing effort to bring down inflation in the UK. The BoE expects inflation to rise again into year-end, to around 2.75%, so might welcome a stronger currency.

GBP/CHF was already one of the two best performing pairs for Sterling over the week to Friday but BofA Global Research forecasts suggest that it’s likely to rise further, to 1.20, by year-end. EUR/CHF, meanwhile, is seen rising back to 0.9968 and USD/CHF has been tipped for a recovery to 0.89.

Above: GBP/CHF shown at weekly intervals alongside USD/CHF and EUR/CHF.