Without major economic factors influencing the GBP this week, it continues to be supported ahead of the December meeting. In the meantime, attention turns to today's SNB meeting, where a 50bp rate cut is anticipated. Another key point to watch is how the SNB President addresses the recent strength of the CHF, as a strong CHF is not desirable for the SNB

GBP: Best performance in G10

The outlook for GBP remains bullish, supported by strong domestic and external factors, with no significant changes in the current forecast. October's inflation data, particularly persistent services inflation, reinforces the Bank of England's (BoE) "gradual cut" approach, suggesting a likely hold on rates in December. The robust UK labor market, marked by strong wage growth, continues to exert moderate inflationary pressures, supporting a delayed easing cycle. Additionally, recent fiscal stimulus, equivalent to 1% of GDP, is expected to boost domestic demand, further postponing the need for monetary policy adjustments. The UK’s lower exposure to trade tariffs and its services-driven economy provide resilience compared to the Eurozone, enhancing GBP's relative appeal. Improved UK-EU relations also offer structural support for a stronger GBP in the longer term.

Last week, BoE Governor Bailey commented on rate cuts, suggesting four cuts next year—slightly more than market expectations of 3.5 cuts. While this initially applied some bearish pressure on GBP, the impact faded as the market interpreted it more as a reflection of pricing dynamics than his personal outlook. The recovery in GBP was further supported by upward revisions to final PMI readings, particularly the Services and Composite indices, with the latter rising to 50.5 from a contractionary 49.9 in the flash estimate.

BoE member Greene also highlighted uncertainty around the impact of US tariffs on UK inflation. However, the UK's trade structure, with a smaller share of GDP tied to services exports vulnerable to tariffs, positions GBP to weather trade-related shocks better than the Eurozone. Additionally, the UK's small trade surplus with the US reduces exposure to potential US tariff measures, bolstering GBP resilience amid global uncertainties.

Looking ahead, the GBP calendar is relatively light, with October GDP data being the main focus. While this is secondary for the BoE, any negative surprises could increase expectations for rate cuts in 2025 but are unlikely to alter December's outlook. Overall, barring unexpected domestic data, GBP's direction will remain driven by global risk sentiment and recent BoE member narratives.

CHF: 25bp or 50bp cut today?

Domestic developments in Switzerland continue to support selling the CHF, further bolstered by the SNB's dovish stance. November's inflation data revealed a year-over-year rate of 0.7%, below the expected 0.8% (previously 0.6%) and falling short of the SNB's Q4 average projection of 1.0%. Following this release, market expectations now lean heavily toward a 50bps rate cut at the December 13th meeting, with a 71% probability priced in. Furthermore, Capital Economics has remarked that Switzerland may experience deflation in some months next year due to easing price pressures in the services sector. 

Today market attention will shift to the SNB's December meeting, where a 50bps rate cut is anticipated. Chairman Schlegel has reiterated that the policy rate will remain the central tool for stabilizing the CHF, with currency intervention and negative interest rates still viable options if required. This makes the meeting a critical event, particularly for assessing Schlegel’s stance on the recent CHF strength driven by geopolitical events and political uncertainties in the Eurozone, especially in Germany and France.

Without any surprises from the meeting or changes in geopolitical and political tensions, the CHF is likely to remain under pressure in line with the SNB's dovish policy approach. This positions the CHF as a favorable funding currency heading into 2025.

GBP/CHF 4H Chart

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