UBS keeps a positive view on the pound against the Swiss franc. The bank expects the Bank of England to start raising interest rates next week, which would widen sterling's yield advantage over the franc.
UBS maintains a positive view on the pound against the franc, expecting the Bank of England to begin raising interest rates next week. The bank expects a short hiking cycle, with another rate rise in the first quarter of 2027.
Policy divergence drives GBP/CHF
UBS says the gap between the UK and Swiss central banks should continue to support the GBP/CHF exchange rate. The bank said relative interest rates should remain the primary driver of the pair, unless concerns about UK fiscal policy develop into broader confidence issues.
However, the recent UK budget does not significantly change UBS's outlook. The bank expects the measures to have only modest effects on growth and inflation.
Short positioning could add support if fundamentals improve
According to the UBS report published on Wednesday, UK economic data have continued to exceed expectations. The bank also noted that heavily short positioning in the pound creates potential for additional short covering if fundamentals improve or the BoE provides hawkish guidance.
The franc, meanwhile, continues to face a substantial yield disadvantage against higher-yielding currencies like the pound. UBS said this makes GBP/CHF one of the more attractive G10 total-return trades.
UBS forecasts a slide from 1.12 to 1.08
UBS forecasts GBP/CHF at 1.12 in December 2026, declining to 1.09 by March 2027 and 1.08 by June and September 2027. The pair traded at 1.10 on Wednesday.
Over the longer term, Switzerland's low debt, low inflation and strong structural fundamentals should eventually limit franc weakness. UBS expects the case for GBP/CHF to become more balanced once markets begin anticipating Swiss National Bank tightening.
Source: Investing.com
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