Bank UBS expects the Bank of England to start raising rates as early as next week and forecasts support for the GBP/CHF rate due to the yield differential.
Bank UBS maintains a positive forecast for the British pound relative to the Swiss franc. Analysts at the Swiss bank believe that the upcoming interest rate hike by the Bank of England will give the pound an advantage in yield over the franc.
According to the report published on Wednesday, the Bank of England will start a short cycle of rate hikes as early as next week. The second hike is expected in the first quarter of 2027. Such a divergence in policy between the central banks of the UK and Switzerland should support the GBP/CHF pair.
UK economic indicators continue to beat expectations. Significant short positions in the pound create potential for their closure amid further data improvement or more hawkish signals from the Bank of England. The recently presented budget does not substantially change UBS forecasts, as its measures will have only a moderate impact on growth and inflation.
The main driver of the pair will remain the interest rate differential, unless concerns over fiscal policy escalate into questions of credibility. UBS forecasts the GBP/CHF rate at 1.12 in December 2026. By March 2027 it is expected to fall to 1.09, and by June and September to 1.08. On Wednesday the pair traded around 1.10.
The Swiss franc continues to lag in yield behind higher-yielding currencies such as the pound. This makes the GBP/CHF pair one of the most attractive trades by total return among G10 currencies. In the longer term, Switzerland's low public debt, low inflation and strong structural indicators should limit franc weakening. The situation for the pair will become more balanced when markets start pricing in expectations of policy tightening by the Swiss National Bank.