The Great British Pound, or GBP, belongs to the UK. Meanwhile, the Swiss Franc, or CHF, belongs to Switzerland. Together, they form the GBPCHF currency pair. This pair is among the eighth most traded currency pair in the world. It is quite popular despite being a cross-currency pair. The reasoning behind this is that it gives high interest yields which we’ll discuss in more detail later on. Both of these nations are individually among the most developed in the world. This is also why they’re members of the G8. The G8 consists of the eight most developed countries in the world. Let’s look at these currencies as individuals before we explore the idea of them as a currency pair.
The Great British Pound
The British Pound is the currency of the United Kingdom and Crown Dependency territories. In terms of trading volume, it is the world’s fifth most popular currency. It is also the world’s oldest method of payment, and is generally called by locals as the “Quid.” It is still one of the world’s most significant currencies today. As early as 775AD, the pound was recognized as equal to one pound of silver.
Following England’s loss against France in 1694, the newly formed Bank of England began to print Pound notes, which soon became widely publicized. The Bank of England is in charge of producing this valued mode of payment. The value of the pound was connected to gold weight rather than silver weight in the early 18th century. However, the government stopped the use of gold as a form of payment in order to finance its war expenditures during World War I. After the war, it temporarily returned to the gold standard, but the start of World War II caused the country’s currency to be fixed. In the 1970s, the currency fix was broken, and the pound sterling is now a freely floating currency.
The Swiss Franc
The Swiss Franc is the national currency of both Switzerland and Lichtenstein. It is just one of those currencies that have not been expelled from the EU as a result of the Euro’s adoption. Switzerland wished to keep its own currency, the CHF. The Swiss franc is the tenth most popular currency in terms of the trading volume. It accounts for 1% of the daily trade volume in the industry.
It is also the world’s fifth most commonly stored reserve currency. Swiss Franc notes are produced by the Swiss National Bank. Switzerland is a popular place for financial assets since it has one of the greatest private banking systems in the world. It is also a popular holding location since Switzerland is believed to have one of the world’s most stable economies.
Why Trade GBPCHF
Both the UK and Switzerland are sort of rebels as they’ve both disregarded the EU in one way or the other. This makes them unique to the rest of the world but quite similar to each other. Here is why you should trade the GBPCHF currency pair:
The correlations between currency pairs like the GBPCHF and other assets in the market are a great reason to trade them. This is evident in the case of the British Pound, which has strong correlations with commodities such as machinery and transport. These are its most popular exports. It is especially evident in the instance of the Swiss franc, which has strong linkages with goods such as medicines and watches. This is due to their involvement in the exportation of these valuable products. As a result, trading this pair becomes even easier since if we understand the direction of the commodities market, we can easily grasp the direction of the GBPCHF market as well. We’ll go over how these commodities will affect the movement of the GBPCHF currency pair in greater detail later.
Identifying market conditions for GBPCHF seems to be rather clear cut. This is due to the fact that they are most influenced by developments in their respective countries, namely the United Kingdom and Switzerland. Because the USD is the standard currency for global transactions, any changes anywhere in the world would have an impact on a pair including the USD. Similarly, any changes that occur anywhere in the European Union’s 28 member countries would have an impact on a pair that contains the Euro. As a result, maintaining track of every location that may have an impact on a currency pair becomes rather difficult. Forex pairs that are exclusively tied to a certain region, such as GBPCHF, are much easier to forecast since we just need to assess their individual nations for economic changes.
The United Kingdom is well-known for its high interest rates set by the Bank of England. These high interest rates are far higher than those of other market players like the United States and Australia. Switzerland has substantially lower interest rates than the United Kingdom. The Swiss National Bank is responsible for Switzerland’s low interest rates.
Their economy is relatively steady, which is why their interest rates are so low. As a result of these interest rates, traders are driven to the GBPCHF currency pair due to its high interest yields. Because of the wide disparity in interest rates, this combination delivers high returns. When trading this currency pair, traders usually employ a carry trade due to the high rewards. Carry trading is the practice of selling a low-interest-rate currency in order to buy one with a higher interest rate.
GBPCHF Trading Tips
As we’ve mentioned previously, GBPCHF is quite unique to others but very similar to each other. This places them in quite a tricky spot as their markets would be facing very unique circumstances. Here are a few tips for trading the GBPCHF currency pair:
Although you can generally trade the GBPCHF currency pair anytime as long as the market is open, there are certain timings that make the market conditions perfectly ideal for this dynamic duo. The perfect time to trade this pair is when the London market is open. This would be considered between 8 am and 4 am GMT. The reason this timing is so ideal is because if any changes were to occur in the economic or monetary policies of these individual countries, they would occur within this time zone. And so, this is why it is important to keep in mind trade timings when trading the GBPCHF currency pair.
Carry trade is the practice of borrowing a low-interest-rate currency to invest in a higher-interest-rate currency. When using the carry trade strategy, you must first decide on the funding and asset currencies. The currency traded in the transaction is known as the funding currency. This currency often has a lower interest rate. Historically, the CHF has been a popular funding currency. Selling the CHF while simultaneously buying the GBP, is critical for successful GBPCHF carry trading. When this happens, you will be paid interest based on the difference in interest rates between GBP and CHF which is quite a significant amount.
The technique of determining when to enter a trade by analyzing support and resistance levels is known as range trading. The highest points on a particular chart are the resistance levels. Similarly, the lowest points on a particular chart represent support levels. Understanding the location of these highs and lows is critical to the range trading approach. For instance, if the price is approaching a resistance level and you believe it will hold, you may place a SELL order. If the price, on the other hand, reaches a level of support that you believe will hold, you may make a BUY transaction. If the price goes below the support level, you can begin a short position because the support level will no longer be valid. Similarly, if the price continues to rise over the resistance level, you may enter the market long since the resistance level will be invalidated.
Factors Affecting GBPCHF
Both the UK and Switzerland are quite similar to each other. Despite this, they are each known for their own reasons and have greatly benefitted from them respectively. Here are a few factors impacting the GBPCHF currency pair:
The Pharmaceuticals Industry
Switzerland is one of the world’s largest exporters of medicinal products. These mostly consist of medications, although other pharmaceutical items are also provided. Any changes in demand for these products have a considerable influence on the value of Switzerland’s economy. If worldwide demand for drugs and other medicines rises, Switzerland will be able to export them more often, improving the value of the CHF. As a result, the value of the GBPCHF currency pair would plummet. Similarly, if the worldwide demand for drugs and other pharmaceuticals falls, Switzerland will be unable to export as much as usual, leading the CHF to lose value. As a result, the value of the GBPCHF currency pair would increase.
The Transport Industry
The United Kingdom is a leading exporter of automobiles and auto parts. As a result, its economy is strongly dependent on worldwide demand for these goods. Any changes in demand for transportation vehicles will have an immediate impact on the pound’s value. If demand for automobiles declines, the UK will not export as many of them, causing the value of the GBPCHF to fall. Similarly, if worldwide demand for autos increases, the UK will export them more frequently, and the value of the GBPCHF will rise.
The Watch Industry
Switzerland is also well-known for its timepieces and its exports of them as well. They produce some of the highest-quality watches in the world. Their watches are quite popular abroad, accounting for a sizable share of their exports. Any changes in demand for these products have a substantial influence on the Swiss economy’s value. If worldwide demand for watches rises, Switzerland will be able to export them more often, raising the value of the CHF. As a result, the GBPCHF currency pair’s value would plummet. Similarly, if worldwide demand for watches falls, Switzerland will be unable to export as many as it does now, leading the CHF to lose value. As a result, the GBPCHF currency pair’s value would appreciate in value.
The Machinery Industry
The United Kingdom is a leading exporter of electrical machinery. As a result, its economy is strongly dependent on worldwide demand for these goods. Any changes in demand for electrical machinery will have an immediate impact on the pound’s value. If demand for electrical machinery declines, the UK will not export as many of them, causing the value of the GBPCHF to fall. Similarly, if worldwide demand for electrical machinery increases, the UK will export them more frequently, and the value of the GBPCHF will rise.
Both the Bank of England and the Swiss National Bank are majorly responsible for any instability in the GBPCHF marketplace. The BOE and SNB release monthly reports and statements regarding updates to any policy changes. These reports also display the economic and monetary forecasts for the upcoming short-term. Any positive results from the BOE will have a positive impact on the GBPCHF currency pair.
However, any positive results from the SNB will have an inverse impact on the GBPCHF currency pair. The representatives of these individual banks also hold speeches frequently where they explain these results in more detail. These speeches are just, if not more, important in determining the direction of the GBPCHF market. From BOE, Andrew Bailey who is the Governor of the institution is highly looked upon for his speeches. From SNB, Thomas Jordan who is the Governor of the institution is highly looked upon for his speeches.
The unemployment rate has a considerable influence on the GBPCHF currency pair’s value. Switzerland is renowned for having a very low unemployment rate. Switzerland has one of the world’s most stable economies. Any changes in the number of citizens employed in a country will have an impact on the economy. This is because the more people who are unemployed, the more the government must pay for them from its own resources. This significantly reduces the value of a country’s economy. If Switzerland’s unemployment rate rises, the CHF will decline in value, leading the GBPCHF currency pair to gain in value. Similarly, if the unemployment rate in the United Kingdom rises, the value of the GBP lowers, leading the GBPCHF currency pair to decline as well.
Most common questions asked by the forex traders about GBPCHF:
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