The GBPCHF pair is not a major currency pair, but is considered a currency cross of the British Pound and the Swiss Franc. Both the currencies comprise of two of the major European currencies. The advantage of trading GBPCHF is that there is high liquidity, or in other words, the amount of investors that are buying and selling the GBP/CHF is fairly strong.
As such, the average spread retail traders typically pay on trading one standard lot GBP/CHF is 4.7-5.0-pips, and this spread is lowest during the European trading hours, from 07:00 GMT to 16:00 GMT. Outside of European trading hours, the spread retail traders pay to trade one standard lot of GBP/CHF tends to rise, especially from 20:00 GMT to 06:00 GMT.
Factors Influencing the GBPCHF Pair
As with any economy, the most important factors that determine the currency pair’s price movements are the local or regional interest rates in their respective economies. The Bank of England decides the U.K. interest rates typically on the first Thursday of every month. On the other hand, the Swiss National Bank only sets its interest rate on a quarterly basis.
A decision to cut interest rates or increase accommodating monetary measures has historically been negative for the local currency. For example, if the Bank of England cuts its key interest rate, the GBP/CHF is likely to depreciate; if the Bank of England raises its key interest rate, the GBP/CHF is likely to appreciate.
The basis for the monetary policy decisions and therefore also an important factor for the pair’s price is each economy’s output, or gross domestic product (GDP). Inflation levels are also important factors for the central banks when making rate decisions and consumer price Index (CPI) results will therefore strongly affect trading.
A higher GDP or higher inflation rate both suggest no monetary action or possibly even raising interest rates, and are therefore currency positive. Read more on how to trade the GBP during UK GDP Report releases.
Additionally, other releases that affect trading are indicators that tell of the health of the economy. Higher retail sales and a low unemployment rate, mean a strong economy. The U.K. Production Managers’ Index will indicate future GDP reports. The producer price index will also give clues to inflation changes, but are not as definitive as the CPI.
Both economies are in Europe, but obviously do not use the single currency, and are therefore somewhat sensitive to the Euro debt crisis. The Sterling is considered a safe haven currency when compared to the Euro, but will trade as a risky currency when compared to other safe havens like the U.S. Dollar or the Yen. The Swiss Franc has become more defined as a safe haven currency in the current crisis, and has strengthened against the Euro in recent years. Therefore, the Pound will benefit slightly more than the Franc from good news out of the Euro-zone, when there is no central bank interference.
However, to stop the over-strengthening of the Franc, the Swiss National Bank has set a 1.2000 ceiling in its trading against the Euro. Therefore, the Swiss Franc trades just like the Euro against all other currencies.
Analyzing GBP/CHF Charts
The GBP/CHF chart is nearly an inverse replica of the EUR/GBP chart and the Franc responds to all economic data like the Euro. As long as the SNB doesn’t allow the EUR/CHF to fall below 1.2000, and market forces keep the pair from rising, the above trend will most likely remain.
On the GBP/CHF daily chart, the pair has been appreciating soundly for the better part of the past year, especially since the Swiss National Bank implemented the EUR/CHF floor on September 6, 2011. Currently, there are a number of trends that are in play. Mainly, the pace at which the Euro-zone crisis moves will dictate price action in the GBP/CHF.
In the worst case scenario, the GBP/CHF is the most bullish, with a projected price target of 1.6300-1.6400 by March 1 (as indicated by Trend line A). If the crisis eases moderately, the uptrend should remain, with a price target of 1.5500-1.5600 by March 1 (as indicated by Trend line B). If the crisis improves towards a calmer state, we expect the GBP/CHF appreciation to continue, albeit at a slower pace, and for the pair to trade near 1.5200-1.5300 by March 1 (as indicated by Trend line C).
Trading GBPCHF – Summary
- Typical Spreads on GBPCHF: 4.7 – 5 Pips (During trading hours)
- Most active: During London Sessions (0700GMT to 1600GMT)
- Widening Spreads between: 20:00 GMT to 06:00 GMT