Recent UK data continues to show that the economy remains resilient, which could ease pressure on the Bank of England to cut rates. Bailey’s hawkish stance at Jackson Hole further supports the Pound in the near term. In contrast, as geopolitical tensions gradually diminish, France remains under pressure due to its weaker fundamentals.

GBP: Turn down for what

During the last trading week, the British pound continued to rise as the risk sentiment stabilized, and expectations of aggressive rate cuts from the Fed fueled a risk-on environment. Additionally, the release of the UK August PMI bolstered the GBP, indicating that the UK economy remains solid and resilient, easing pressure on the BoE to cut rates further. The services PMI came in at 53.3, above the expected 52.8, while the manufacturing PMI reached 52.5, slightly exceeding the forecast of 52.1. The composite PMI also outperformed, rising to 53.4 from a previous 52.8. However, while price pressures have eased, with input cost inflation falling to its lowest level in over three and a half years, wage inflation remains high, particularly in the services sector, indicating that the inflation challenge is not yet fully resolved.

At the same time, BoE Governor Andrew Bailey spoke at Jackson Hole, expressing cautious optimism that inflation expectations remain anchored, though he stressed it is too early to declare victory over inflation. Bailey emphasized a steady approach moving forward and highlighted the importance of clear communication as the BoE navigates short-term shocks or balances the trade-off between inflation and economic activity. His remarks signalled a hawkish stance, offering a green light for risk assets and further supporting the pound into the week ahead. Looking forward, the pound’s agenda is relatively light. Markets will focus on BoE MPC Member Catherine Mann's upcoming speech. Known for her hawkish views, any strong comments from Mann regarding persistent inflation, a tight labor market, or wage pressures could provide additional support for the GBP.

Goldman Sachs Trade Level on GBP/CHF

CHF: Still under pressure

From a broader perspective, Switzerland's fundamental outlook remains steady, with the market still expecting a potential rate cut from the SNB later this year. July inflation data came in at 1.3% y/y, which is in line with the SNB’s forecasts, suggesting that the central bank may maintain its current stance. During the June meeting, SNB President Thomas Jordan expressed concerns about a strong CHF, noting it could hurt domestic importers and exacerbate inflationary pressures. However, the recent strength of the CHF may be driven by market hedging as investors grow increasingly concerned about a potential US recession.

Goldman Sachs recently suggested that the SNB likely intervened last week to curb CHF strength, citing unusual price action, a rise in sight deposits, and the SNB’s historical patterns. Looking ahead, the CHF agenda is relatively light, with no significant events likely to drive the currency. Additionally, without further developments from geopolitical tensions, such as a response from Iran, the CHF’s recent strength could gradually fade.

GBP/CHF 4H Chart

GBP/CHF Current Retail Sentiment

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