Constructive US-UK trade discussions, along with the gradual normalization of UK-EU relations since Brexit, are expected to support the GBP in the near term. On the other hand, the recent easing of US-China trade tensions is reducing safe haven demand, weighing on the CHF. Additionally, dovish comments from the SNB further weaken the franc's appeal for now.

GBP: the best of both worlds?

As widely expected, the BoE delivered a 25bp rate cut last week. The MPC split three ways, however, with five policymakers including Governor Andrew Bailey voting to cut by 25bp, two voting to keep rates unchanged and two voting for a 50bp cut. The voting split highlights that any future policy decision would be finely balanced. This is further corroborated by the BoE’s forward guidance that pointed at “gradual and careful easing” from here.

UK rates investors saw the outcome of the meeting as a 'hawkish' cut and pared back their rate cut expectations for this year and next, in a boost to the GBP. It should be also mentioned that the BoE outlook for the economy could improve from here, given that the MPC has not pencilled in the impact from the trade deal between the US and UK that President Donald Trump and Prime Minister Keir Starmer announced jointly yesterday. EUR/GBP continues to trade at a premium relative to the EUR/GBP and should remain bearish on the cross from current levels.

The trade agreement between the US and the UK included lower US tariffs on steel, aluminium and cars, while keeping the baseline 10% tariff on other UK exports. The deal is nevertheless quite limited in scope and represents the first step towards a more comprehensive trade deal in the future. That being said, the UK moving closer to a trade deal would contrast with the still uncertain prospects for a deal between the EU and the US. Meanwhile, the gradual post-Brexit rapprochement between the UK and the EU continues and could, over time, alleviate some of the negative consequences for the former, in a boost to the GBP. All this should keep EUR/GBP under pressure, into near term.

Looking ahead, markets will scrutinise the GDP data for March as well as the employment data for March and April. In addition, markets will focus on a number of BoE speeches as they gauge the magnitude of the bank’s easing bias in the wake of the May policy meeting. Absent any significant data disappointments or dovish surprises, the still undervalued GBP could outperform the EUR.

CHF: Put your money where your mouth is

The CHF has lost some ground vs its European peers after the SNB Governor Martin Schlegel commented earlier this week that the currency has appreciated “a lot” and that the recent FX moves could force the bank to intervene in FX markets and/or push policy rates into negative territory once again.

Given the risks that Switzerland could be labelled a currency manipulator by the US administration, an FX market intervention appears less likely in the current environment. The latest SNB FX reserves data seems to corroborate that view. The reserves fell by more than CHF20bn in April and highlighted that the sharp CHF appreciation last month likely reduced the value of the SNB USD and EUR holdings; and the SNB is still to put its money where its mouth is and intervene in FX markets to cheapen the CHF.

Therefore, market continue to believe that further rate cuts would be the path of least resistance for the SNB in the coming months and quarters. This week’s calendar is fairly light in Switzerland. The CHF could thus continue to closely follow any gyrations in global risk appetite. If the risk appetite continue improving, could expect the selling pressure remain on CHF.