Pound Forecast Higher vs Dollar and Swiss Franc - Reasons Why GBP/CHF and GBP/USD Could Head Higher
- Written by: Will Peters
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The British pound exchange rate complex (GBP) has not enjoyed the past few weeks on global exchange rate markets.
Punishing losses for sterling against a rampant USD have been witnessed while trade against the remaining G10 has been subdued.
However, today we have two pieces of research that suggest gains in the GBP against the Swiss Franc and US dollar exchange rate pairings could be due.
For reference, the pound to Swiss Franc exchange rate (GBP/CHF) is currently trading 0.18 pct lower at 1.5354.
The pound to US dollar exchange rate (GBP/USD) is trading 0.52 pct lower at 1.6034.
Beware: The above are spot market quotes, your bank will affix a discretionary spread to the figures. Note that an independent FX provider is able to provide up to 5% more currency in some cases by getting closer to the market, find out more.
Back the Pound Against the Swiss Franc say Credit Agricole
In a note to clients Credit Agricole say they are sticking to their pro GBP/CHF stance and expect more gains.
Adam Myers at Credit Agricole says:
"UK industrial production in August rose at a constructive pace, regardless of falling external demand expectations as related to weaker conditions in the Eurozone.
"This in combination with still expanding services sector-related business activity should make a case of further improving labour market conditions to the benefit of stabilizing price developments.
"Accordingly we expect investors’ BoE rate expectations to stay well supported keeping the GBP a buy on dips around the current levels, for instance against the CHF.
"The cross should benefit from diverging BoE-SNB monetary policy expectations.
"This is especially true as lower than expected Swiss inflation in September should reinforce the SNB’s dovish monetary policy stance. We remain long GBP/CHF."
CA runs a long GBP/CHF from 1.5140 targeting 1.5800.
Why the Pound Dollar Exchange Rate Could Rise
Turning to the sterling dollar rate, the prospects of a rise are based more on the suggestion that the USD is due a corrective fall lower.
Indeed, at the time of writing this prediction is already in play - the USD has weakened in the wake of the FOMC minutes released on Wednesday night. The strong bull run needed an excuse to end, and this looks like it has occured.
So, GBP/USD is ultimately a USD story at present.
Credit Suisse tell us:
"After a record 12 consecutive weeks of gains, the USD index is struggling to pull off a 13th as consolidation in the FX market sets in.
"Last Friday’s strong US payrolls data should have been sufficient to validate a continued rise in the USD, but the quick retracement in US yields is telling a different story.
"Concerns about low inflation in the US and the influence of low rates and high liquidity from Japan and Europe are at play, while US 5y5y inflation swaps continue to soften."
We Now Sell the USD
Credit Suisse have taken these observations and crystallised them into a trading strategy:
"In this context, ahead of the next key US event risk in the form of the 29 October FOMC, we believe the long-feared noisy consolidation in the USD vs G10 may finally be upon us.
"For the last two weeks we have not been inclined to add to our long USD positions in case of this eventuality, preferring to let the existing ones run. We now go one step further and in selected cases we sell USD."
Considering the GBP has not yet enjoyed any kind of relief rally against the USD we would consider it to be a primer target of any relief rally.
Furthermore, the Bank of England is widely expected to be the first major central bank to raise interest rates in early 2015.
The prospect of rising rates will most likely keep GBP set-up as one of the more resilient currencies going forward when it comes to trading against the USD.
