The positive developments in UK-EU relations are expected to provide long-term support for the British pound. Additionally, the UK's resilient economic performance adds further strength to the currency. In contrast, the recent easing of US-China trade tensions has reduced demand for safe-haven assets, putting downward pressure on the Swiss franc. Dovish signals from the SNB further diminish the franc's appeal in the near term.

GBP: Time to shine

The GBP has proved to be one of the more resilient G10 currencies in recent days and this partly reflected the fact that incoming UK data pointed that the economy is proving to be more resilient than expected. More recently, the Q1 GDP data came in better than expected with the quarterly growth figures suggesting that growing business investment, next exports and GFCF more than offset the impact from weaker government spending and private consumption. The monthly GDP data for March was also more upbeat with headline growth reflecting contributions from the services and construction sectors.

Looking ahead, FX investors could prefer currencies that would benefit from the improving global growth outlook and resilient risk sentiment in the wake of the US-China trade truce. Softer FX vols could further burnish the appeal of FX carry trades in a boost to high-yielding currencies while hurting low-yielding, funding currencies like the CHF and JPY. The GBP could be among the key beneficiaries given its rate and growth appeal.

This week, CPI, retail sales and PMI data out of the UK could attract considerable attention. Evidence that the UK’s economic outlook is proving more resilient than expected could encourage investors to reassess their BoE rate cut expectations and give the relative rate appeal of the GBP a boost. In addition, the UK-EU summit could fuel hopes for further rapprochement between the two and thus for further abatement of the post-Brexit headwinds for the UK economy

CHF: De-escalated in parts.

The initial market euphoria in the wake of the US and China meeting in Geneva where the two countries agreed to substantially lower their reciprocal punitive tariffs for a period of 90 days has now faded.

As a result, the safe-haven CHF was able to recoup some lost ground vs the USD and EUR in recent days. Looking ahead, it remains to be seen whether the trade truce could ultimately pave the way for securing a durable trade agreement, while markets may still have in mind the fact that the 2018 trade deal between the two countries quickly unravelled leading to extra tariffs for nearly two years. It would thus take tangible evidence that the global trade war is deescalating for good to see the CHF losing ground again in the coming weeks.

Any eventual détente in the many geopolitical hotspots could also help boost market sentiment. Against what could become a more benign global backdrop, the CHF could then be poised to reverse more comprehensively the sharp appreciation of April, a point that SNB President Martin Schlegel could again re-emphasise in his several interventions in the week ahead.

GBP/CHF 4H

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