The baseline outlook for the GBP remains bullish, driven by the BoE’s slightly hawkish stance, persistent services inflation, and rising wage growth, which has led markets to scale back expectations for rate cuts next year. Meanwhile, barring any significant geopolitical or political turmoil, the CHF remains under pressure due to the SNB’s firmly dovish stance.

GBP: Still supported, but require new upside catalyst

The baseline outlook for the GBP remains bullish, supported by resilient domestic data, including sticky inflation and the BoE’s gradual approach to rate cuts. However, in the absence of significant macroeconomic drivers last week, the GBP has largely tracked USD movements and responded to weaker global risk sentiment. Additionally, the release of disappointing monthly GDP data, showing a contraction of -0.1% m/m and stagnation in services at 0.0%, underscores a sluggish economic environment. While these figures are unlikely to influence next week’s widely expected BoE decision to hold rates steady, they highlight the growing risk of deteriorating economic conditions, which could increasingly weigh on the BoE's rate cut decisions in 2025.

Looking ahead, market focus will shift to the UK employment report, November CPI, and the December BoE meeting. While the employment and inflation data are not expected to influence this month’s monetary policy, they will shape expectations for the BoE’s approach in 2025. Recent employment data revealed that both headline weekly earnings and the ex-bonus measure have accelerated above 5.0%, complicating the BoE’s outlook for further rate cuts. This has led traders to reduce bets on additional cuts in the coming year. Later today, the UK CPI is expected to show inflation remaining stubborn, with services inflation likely persisting around 5%.

For now, the December BoE meeting is expected to maintain the current policy stance, aligning with the gradual approach communicated in November. In the absence of significant catalysts, the pound is likely to remain sensitive to global risk sentiment.

CHF: Remain best funding currency into 2025

The CHF outlook is bearish following the SNB's unexpected 50bps rate cut to 0.50% at the December meeting. The move signaled a shift towards a more accommodative monetary policy, accompanied by softer forward guidance. The SNB revised its inflation forecasts downward, with inflation projected at 1.1% for 2024 (down from 1.2%) and dropping sharply to 0.3% in 2025 (previously 0.6%). GDP growth projections remained unchanged for 2024 at 1.0%, with modest growth of 1-1.5% expected in 2025. The SNB emphasized that further rate cuts may not be immediate but could occur over the coming quarters depending on data developments, shifting from a strong dovish stance to a more gradual approach. While the SNB remains committed to ensuring inflation stability, it has stopped explicitly mentioning “further rate cuts,” signaling a potential pause in the near term.

Additionally, the SNB maintained its readiness to intervene in the foreign exchange market if necessary, with Chair Schlegel reaffirming the importance of CHF developments. However, the central bank expressed a preference for avoiding negative interest rates, although it left the door open to using them again if required. The inflation outlook remains subdued, and with inflationary pressures diminishing, the SNB appears more tolerant of inflation falling temporarily below its 0-2% target range. This has contributed to the weakening of the CHF, which saw immediate downside following the rate cut, with EUR/CHF rising. ING anticipates this to be a temporary move, noting that the ECB is expected to outpace the SNB in rate cuts through 2025, driving EUR/CHF lower toward 0.90 as broader geopolitical risks and Eurozone recession risks weigh on the pair.

Looking ahead, CHF sentiment is likely to remain under pressure as markets price in further SNB rate cuts into 2025, albeit with a more measured approach. Risks include heightened geopolitical tensions and potential disruptions from US economic policy, which could paradoxically increase demand for the CHF as a safe-haven currency. This poses a risk to the SNB's objective of maintaining a competitive CHF, given its reluctance to see significant CHF strength. Overall, the CHF is set to remain bearish into 2025, though upside risks from geopolitical tensions may create periods of temporary strength.

GBP/CHF 4H Chart

Disclaimer

This material is provided for informational purposes only and does not constitute financial, investment, or other advice. The opinions expressed in this material are those of the author and do not necessarily reflect the views of Trive International. No opinion contained in this material constitutes a recommendation by Trive International or its author regarding any particular investment, transaction, or investment strategy. This material should not be relied upon in making any investment decision.

The information provided does not consider the individual investment objectives, financial situation, or needs of any specific investor. Investors should seek independent financial advice tailored to their individual circumstances before making any investment decisions. Trive International shall not be liable for any loss, damage, or injury arising directly or indirectly from the use of this information or from any action or decision taken as a result of using this material.

Trive International may or may not have a financial interest in the companies or securities mentioned. The value of investments may fluctuate, and investors may not get back the amount they originally invested. Past performance is not indicative of future results.

For more information about Trive International, please visit http://trive.com/int

Additional Information

Investing involves risk, including the potential loss of principal. Diversification and asset allocation strategies do not ensure a profit or guarantee against loss. The content in this material is subject to change without notice and may become outdated or inaccurate over time. Trive International does not undertake any obligation to update the information in this material.

By accessing this material, you acknowledge and agree to the terms of this disclaimer. If you do not agree with these terms, please refrain from using this information.