UBS's Forecast for the Pound#
UBS strategists predict that the British pound (GBP) will gradually strengthen against the Swiss franc (CHF) in the coming months. This forecast is supported by the Bank of England's (BoE) hawkish stance, which means they are likely to raise interest rates, and a significant interest rate advantage for the pound over the franc.
Recent Currency Movements#
The GBP/CHF currency pair has bounced back to levels seen before the US-Iran conflict, according to a report from UBS's Chief Investment Office. Initially, the pair fell sharply as investors sought safer assets during the conflict, but it has since recovered due to improved risk appetite and stronger-than-expected economic data from the UK.
Interest Rate Dynamics#
The BoE's recent policy vote showed that eight members favored keeping interest rates steady, while one member wanted to raise them. UBS anticipates that the BoE will continue its tightening approach, while the Swiss National Bank is expected to maintain current rates. This creates a yield gap of about 4% in favor of the pound, making it more attractive to investors.
Potential Risks and Volatility#
UBS forecasts that the GBP/CHF exchange rate will reach 1.08 by September and maintain that level through March 2027, up from its current level of 1.06. However, upcoming UK elections in May could introduce short-term volatility and potential weakness for the pound. Despite this, UBS does not foresee lasting political instability, as no strong challengers have emerged within the Labour Party.
The report also highlights resistance levels around 1.07 to 1.08 and support near recent lows of 1.03. Risks to this forecast include renewed geopolitical tensions or significant declines in equity markets, which could favor the franc. Conversely, a resolution of global conflicts or a more aggressive stance from the BoE could push the GBP/CHF pair higher than expected. Recent UK economic data has been surprisingly positive, as noted by the Citi Economic Surprise Index.