UBS remains positive on the British pound against the Swiss franc, expecting the Bank of England to begin raising interest rates next week, which will strengthen the pound’s yield advantage over the franc.
The Swiss bank expects the Bank of England to embark on a short rate-hiking cycle beginning next week, followed by another increase in the first quarter of 2027. This monetary policy divergence between the British and Swiss central banks is expected to continue supporting the GBP/CHF exchange rate.
According to a UBS report published on Wednesday, UK economic data continued to exceed expectations. The bank noted that large short positions in sterling leave room for further short covering if economic fundamentals improve or the Bank of England issues more hawkish guidance.
The latest UK budget does not materially change UBS’s outlook, as the effects of the measures on growth and inflation are likely to be limited.
The bank said relative interest rates should remain the main driver of GBP/CHF unless concerns about UK fiscal policy develop into broader issues affecting confidence.
UBS expects GBP/CHF to reach 1.12 in December 2026, then fall to 1.09 by March 2027 and 1.08 by June and September 2027. The pair was trading at 1.10 on Wednesday.
UBS explained that the Swiss franc continues to suffer from a notable yield disadvantage compared with higher-yielding currencies such as sterling, making GBP/CHF one of the most attractive total-return trades among the G10 currencies.
Over the longer term, Switzerland’s low debt, low inflation and strong structural fundamentals should ultimately limit the franc’s weakness. UBS expects the arguments around GBP/CHF to become more balanced as markets begin to price in expectations of monetary policy tightening by the Swiss National Bank.
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