Bank of Switzerland will support the franc if necessary

30 December 2022 301
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The GBPCHF pair is gradually sliding down from its mid-December highs above 1.15 to November lows of 1.108. Next year the current downward trend might get a continuation, as fundamentally the franc looks more stable compared to the pound.

 

The franc's status as a safe haven currency plays a supportive role. Such a description clearly does not apply to the pound, especially after September's collapse. Moreover, the real rate of return (adjusted for inflation) on assets denominated in francs is substantially higher than the rate of return on assets denominated in British currencies.

 

Even if the franc suddenly has the potential to fall, the Swiss National Bank (SNB) will save it. In fact, the Swiss financial regulator is already supporting the national currency by increasing asset sales in other currencies from 5 million francs in Q2 this year to 739 million francs in Q3.

 

According to Credit Suisse estimates, the rate of foreign currency asset sales by the SNB continued to increase in Q4. In October alone, the SNB managed to sell 13.3 billion francs in foreign currency. Given that the SNB has accumulated more than 350 billion francs in foreign exchange in its reserves between 2015 and mid-2022, the Swiss regulator could potentially prevent almost any attempt at a weakening of the franc by traders.

 

2023 does not seem like a good period for growth for the pound. The economy is close to recession, and Bank of England officials will increasingly vote against further policy tightening. After all, between supporting the economy and fighting inflation, financial regulators choose to fight in most cases. If it happens this time, the GBPCHF will continue to decline.

 

The first downside target for the GBPCHF is the November lows near 1.108, and then the October lows near 1.093.

 

 

The following trade strategies may be suggested:

 

Sell GBPCHF at its current price. Take profit 1 – 1.108. Take profit 2 – 1.093. Stop loss – 1.122.

 

Also, traders, at their discretion, can use the Trailing stop instead of the fixed Stop loss.

This content is for informational purposes only and is not intended to be investing advice.

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