Relative rates favor the GBP on a total return basis Swiss inflation has largely subsided. The latest inflation print for January, -0.1% m/m and 0.4% y/y, underpins this. The SNB’s intent to curb additional CHF strength also reinforces the CHF's role as a carry trade funder. Contrary to that, UK inflation increased in the latest reading. We are wary not to overinterpret the surge however, and we note the Bank of England's seemingly similar view.
Growth data have not painted a positive picture of the UK economy lately, and the policymakers acknowledged that stagflation risks are on the rise. Despite these concerns, rate differentials near 4% p.a. should keep the GBPCHF well bid and provide the GBP with a positive total return outlook versus the CHF.
CHF remains a reliable hedge The CHF remains a hedge during periods of heightened uncertainty, such as risks tied to US trade policies. Safe-haven demand could rise in response to the Trump administration’s upcoming tariff deadlines. While CHF bearish positioning reflects its role in carry trades, a potential surge in safe- haven demand could drive bullish sentiment and a positioning unwind, supporting the CHF.
While this can push the GBPCHF to the lower bound of its trading range temporarily, at around 1.11, we expect such levels not to last. In the long run we think the GBP’s carry appeal should dominate, which is reflected in our new March 2026 forecast.
We expect the pair to remain range bound within 1.11-1.13 in the months ahead. On a total return basis, this should create interesting carry opportunities once we are through the Trump-related uncertainties in 1H.
The tight six-month range sets major support and resistance levels at around 1.11 and 1.1350-1.14.
A major trade war could fuel more CHF strength. A risk- on environment, driven by more fiscal stimulus in the Europe and Ukraine peace deal negotiations, would shift support in favor of the GBP in the months ahead.
