UBS strategists say the British pound is likely to strengthen against the Swiss franc in the months ahead, supported by the Bank of England's relatively hawkish policy stance and what the bank describes as a material interest rate advantage for the pound.
In a report dated April 30 from UBS's Chief Investment Office, the firm observed that the GBP/CHF pair has recovered to levels seen before the outbreak of the US-Iran conflict. The report notes the pair initially dropped sharply at the onset of that conflict as investors sought safe-haven assets, but it has since rallied amid an improvement in risk appetite and a run of UK economic data that has surprised to the upside.
UBS highlighted the Bank of England's recent policy vote in which eight members preferred to keep rates unchanged while one member dissented in favor of a hike. The strategists expect the BoE to preserve a tightening bias. By contrast, the Swiss National Bank is broadly expected to leave policy rates unchanged, creating what UBS estimates as roughly a 4% yield gap in favor of sterling.
Based on these dynamics, UBS projects the GBP/CHF exchange rate will climb to 1.08 by September and stay at that level through March 2027 - an increase from the 1.06 level cited in the report. The bank's purchasing power parity calculation points to a longer-term equilibrium value of about 1.13.
UBS cautioned that the UK elections scheduled for May could cause short-term volatility and temporary pressure on the pound. Nevertheless, the bank does not expect protracted political instability, noting that no clear challengers to Labour leadership have emerged that would create sustained uncertainty.
From a technical perspective, the report identifies resistance in the 1.07 to 1.08 range and downside support near recent lows of 1.03. The strategists also flagged several risks that could alter their outlook.
Key downside threats include a return of geopolitical tensions or sharp declines in equity markets, scenarios that would tend to favor the Swiss franc as a safe-haven currency. On the upside, a de-escalation of global conflicts or a more hawkish-than-expected stance from the BoE could push GBP/CHF beyond UBS's central forecast.
Finally, UBS referenced the Citi Economic Surprise Index in noting that recent UK economic releases have generally outperformed expectations, a factor they see as supportive of the pound in the current environment.
Note: This article reports UBS's published forecasts and identified risks without adding interpretation beyond the contents of the April 30 report.