GBP/CHF Trading Guide: How to trade the GBPCHF

The GBP/CHF currency pair highlights the relationship between the British pound (GBP) and the Swiss franc (CHF), reflecting the economic interplay between the United Kingdom (UK) and Switzerland. Trading this pair involves predicting the fluctuations of their forex (FX) rate. This requires a solid grasp of the economic conditions, historical contexts, and market influences on these currencies.

In this guide, we’ll explore the history of the GBP/CHF exchange rate and examine the key factors influencing its movements. We’ll also discuss how trading the GBP/CHF pair can present opportunities for traders to diversify their portfolios and speculate on market volatility.

Whether you're aiming to understand the underlying economic forces or seeking practical strategies to improve your trading approach, this guide will provide insights into trading the GBP/CHF currency pair. Read on to explore these essential aspects and more.

Key Takeaways

• GBP/CHF is a minor currency pair in the forex market.
• The GBP/CHF exchange rate is influenced by monetary policy, inflation rates, and market sentiment in the UK and Switzerland.
• Trading GBP/CHF can be approached through spot forex trading or CFD trading, each with its own advantages and risks.
• Effective risk management tools and strategies are essential for successful trading in this currency pair.

Understanding the GBP/CHF Currency Pair

The British pound sterling (£GBP) holds a prominent position in the forex market as one of its oldest and most actively traded currencies, holding the position of the fourth most traded currency as of 2022. Originating from the UK, its trading popularity is strengthened by London's status as a leading global forex hub.

Meanwhile, the Swiss franc (CHF) is recognised as a safe-haven currency due to Switzerland's generally stable financial and political environment. Amid global economic turbulence, the franc typically appreciates, reflecting its safe-haven status alongside the Japanese yen (JPY).

During the early stages of the Great Recession, the Swiss franc notably strengthened against most major currencies, except the JPY.

GBP/CHF, denoting the exchange rate between the British pound and Swiss franc, specifies how many francs are required to purchase a single pound. For instance, if the exchange rate stands at 1.15, it signifies that 1.15 CHF is needed to buy one GBP.

While both GBP and CHF are major currencies individually, GBP/CHF is categorised as a minor pair in forex trading due to the absence of the US dollar (USD). While past performance does not reflect future results, this pair typically exhibits lower liquidity compared to majors.

The History of the GBP/CHF FX Pair

Understanding the historical context of the GBP/CHF forex pair involves examining the origins and evolution of both the British pound and the Swiss franc. This background provides insight into the factors that have shaped their current exchange rate dynamics.

Origins and Evolution of GBP

The British pound sterling is the official currency of the UK, British Overseas Territories and crown dependencies like the Isle of Man and the Channel Islands. Symbolised by the pound sign (£) and colloquially known as "sterling" or "quid," the GBP’s origins trace back to 775 A.D. when Anglo-Saxon kings used silver pennies called sterlings. The name "pound sterling" derived from 240 of these pennies, equalling one pound.

Competing with currencies like the USD, EUR, and JPY in daily trading volume, GBP has been a pivotal player in global finance since the UK allowed it to float freely in 1971. Even after the euro's adoption in 2002 across much of the European Union (EU), the UK retained GBP as its official currency.

History and Significance of the CHF

Introduced in 1850, the Swiss franc is the official currency of Switzerland, Liechtenstein, and the Italian exclave of Campione d'Italia. It remains the sole franc in the Eurozone today. Derived from "Confoederatio Helvetica," the Latin name for the Swiss Confederation, CHF is widely known as the "Swissie" in currency markets.

Renowned for its status as a safe-haven currency, the Swiss franc saw heightened demand post-2008 financial crisis, bolstering its value in global forex markets. In a significant departure from its floating exchange rate policy, the Swiss National Bank (SNB) pegged the Swissie to the euro in September 2011, fixing it at 1.2000 Swiss francs per euro to mitigate economic impacts.

However, the SNB's decision to abandon the peg in January 2015 led to market turmoil, causing Swiss stocks to plummet and the Swiss franc to surge against many currencies within minutes.

The GBP/CHF Pair’s History

The GBP/CHF exchange rate has witnessed significant fluctuations during pivotal periods:

In 2008, the exchange rate saw steady declines from 2.19 on January 6 to 1.56 on December 28, marking a decline of approximately 28.7% within the time frame of about a year. This occurred amidst the global financial crisis, when traders may have sought safe-haven assets, leading to an appreciation of the CHF against the GBP.

Similarly, in early 2015, the exchange rate fell from 1.53 on January 11 to 1.30 on January 18, representing a decrease of about 14.9%. The decline followed the SNB's unexpected decision to abandon its currency peg against the euro, causing a surge in the Swiss franc's value amongst many currencies.

More recently, in August 2022, the exchange rate decreased from 1.16 on August 7 to 1.05 on September 25, marking a decline of approximately 9.5%. This drop coincided with global economic uncertainties and heightened market volatility. The pound sterling faced downward pressure in September 2022 following Prime Minister Liz Truss's announcement of economic policies focused on tax cuts.

Over the past couple of decades, the Swiss franc has appreciated against all major currencies, including the British pound. Appreciation against the pound has been particularly pronounced: while £1 cost between CHF2.25 and CHF2.47 in 2007, as of June 16, 2024, it costs only around CHF1.12.

What Influences the Exchange Rate of GBP/CHF

The exchange rate between GBP and CHF is influenced by a variety of factors that reflect economic conditions in both the UK and Switzerland.

Monetary Policy

Monetary policy decisions by the Bank of England (BoE) play a crucial role in shaping the GBP/CHF exchange rate. The BoE adjusts interest rates to maintain currency stability and control inflation levels. Traders closely monitor these policy changes as they directly impact currency demand and exchange rates. For instance, when the BoE raises interest rates to combat inflationary pressures, it can strengthen the pound sterling against the Swiss franc.

Inflation Rate

The inflation rate in each country affects currency appreciation over the long term. Higher inflation in the UK can weaken the pound sterling relative to the Swiss franc. Conversely, Switzerland's focus on maintaining a lower inflation rate aims to support the appreciation of the Swiss franc over time. Central banks like the SNB use inflation targeting as a tool to influence currency values and maintain economic stability.

Market Sentiment

Market sentiment, or traders' overall attitude towards GBP/CHF, plays a significant role in short-term price movements. Sentiment indicators like the Gfk Consumer Confidence report for the UK and the State Secretariat for Economic Affairs (SECO) Consumer Climate Index (CCI) for Switzerland, gauge optimism or pessimism about their respective economies. Changes in sentiment can indicate shifts in economic trends, influencing trading decisions and exchange rates.

Understanding market sentiment helps traders anticipate potential price swings and adjust their strategies accordingly.

Ways To Trade GBP/CHF

Trading GBP/CHF can be approached through various financial instruments such as currency options, exchange-traded funds (ETFs), and forwards. Among these, spot trading and CFD trading are widely used trading methods.

Spot Forex Trading

FX spot trading involves the immediate exchange of currencies at current market rates, offering direct ownership upon transaction completion.

CFD Forex Trading

Conversely, contract for difference (CFD) trading focuses on speculating on price movements without owning the underlying currencies. This distinction allows traders to get exposure to the market fluctuations without taking physical possession of the traded currencies.

GBP/CHF CFD Trading

Over the years, trading CFDs has gained popularity, offering a flexible way to speculate on price movements of pairs like GBP/CHF without owning the underlying currency. A CFD is an agreement between a buyer and a seller to exchange the difference between the current price of GBP/CHF and its price when the contract is closed.

This means that when the contract is closed, you will either receive or pay the difference between the closing and opening prices of the GBP/CHF CFD.

In GBP/CHF CFD trading, you speculate on the price movements between the British pound and the Swiss franc. If the price moves in your expected direction before the trade is closed, the provider pays you; if it moves in the opposite direction, you incur a loss to the provider. CFD providers typically offer high leverage and low margin requirements for trading GBP/CHF, allowing traders to open positions with a percentage of the asset's total value.

This leverage can amplify both gains and losses, making effective risk management crucial. Understanding spreads and commissions, which vary by provider, is also essential, as these are the primary ways providers earn money.

One advantage of trading GBP/CHF CFDs is the ability to go long or short quickly, depending on your prediction of future price movements. The profit or loss in this forex pair is measured in pips, with each pip movement affecting your leveraged position. Therefore, a comprehensive risk management strategy is necessary to navigate the high-risk nature of GBP/CHF CFD trading successfully.

GBP/CHF CFD Risk Management Tools

There’s a substantial risk of incurring immense losses when you trade a GBP/CHF CFD due to the leveraged nature of these products, allowing you to trade larger positions with limited capital. Risk management is crucial when trading in general, but particularly in the fast-paced and volatile forex market. Applying several risk management strategies is key to safeguarding your capital and making successful CFD trades.

Traders can mitigate risk by using tools such as stop-loss, Take-profit, and guaranteed stop orders. A stop-loss sets a specific price point where your trade will be automatically terminated to minimise possible losses. For instance, setting it at 10% below the purchase price restricts your loss to 10%. A take-profit order, on the other hand, specifies the exact price to close a trade for a profit.

‘Stop Loss’ and ‘Take Profit’ orders can be added when opening or editing a position to minimise your loss or protect your gains, respectively. However, these orders do not guarantee the exact closing price due to potential market slippage, where the position may close at the next available price if the market gaps significantly.

Adding a Guaranteed Stop order can put an absolute limit on potential losses, closing the position at the specified price regardless of market movements, although this feature is available for some instruments only and incurs an additional fee.

Remember that while risk-management tools may help lower the chance of losses, nothing is guaranteed. Therefore, traders should only trade the amount they can afford to lose.

Trading Strategies for GBP/CHF

When trading GBP/CHF, traders can use various strategies, typically falling under fundamental analysis or technical analysis and sometimes using both. Fundamental traders examine economic, political, social, and global variables to predict currency pair movements and assess the value of the currencies.

Technical analysis, on the other hand, focuses on historical price changes to predict future movements of the asset.

Technical indicators are essential tools in trading GBP/CHF, with the Simple Moving Average and the Moving Average Convergence Divergence being popular among traders.

Simple Moving Average (SMA): The SMA helps determine the direction of an asset's price by averaging the closing prices over a specific period, reflecting the asset's volatility and trend direction. An upward-pointing SMA indicates rising prices, while a downward-pointing SMA suggests falling prices.

Moving Average Convergence Divergence (MACD): The MACD indicator is used to identify the direction of a trend, signalling whether it is bullish or bearish. When the MACD level is above zero, it indicates a bullish trend, suggesting that prices are rising. Conversely, a MACD level below zero indicates a bearish trend, suggesting that prices are falling.

GBP/CHF Trading Hours

The forex market operates 24 hours a day during weekdays, opening on Sunday at 5 p.m. local time in New York City and closing on Fridays at 5 p.m. This allows traders around the world to buy, sell, exchange, and speculate on global currencies continuously throughout the week.

Certain trading hours are more advantageous than others; optimal times to trade GBP/CHF are when the market is most active. During periods of high activity, there are more FX traders involved, leading to greater price movement in currency pairs and increased opportunities to speculate, but this also comes with higher volatility and risk.

Traders should remember that conditions can vary depending on the session you are operating in, and a major news release may significantly impact currency values. When unexpected economic data is announced, it may cause GBP/CHF to gain or lose value within seconds.

Although the forex market operates 24 hours a day on weekdays, trading hours on the Plus500 platform may differ.

Conclusion: Trading the GBP/CHF FX Pair

Trading the GBP/CHF forex pair requires a thorough understanding of the economic factors influencing the exchange rate and the trading strategies that can be employed. Whether engaging in spot forex or CFD trading, effective risk management and staying informed about market conditions are crucial for GBP/CHF traders.

By leveraging the unique characteristics of the GBP/CHF pair, traders can navigate the forex market with greater confidence and precision.

If GBP/CHF trading piques your interest, you can start trading GBP/CHF CFDs with Plus500.

GBP/CHF FAQs

What is the GBP/CHF currency pair?

The GBP/CHF currency pair represents the exchange rate between the British pound sterling (GBP) and the Swiss franc (CHF). It indicates how many Swiss francs are needed to purchase one British pound.

Why is GBP/CHF considered a minor currency pair?

GBP/CHF is considered a minor currency pair because it does not include the US dollar (USD). Although both GBP and CHF are major currencies individually, their pairing is categorised as minor due to lower liquidity compared to major pairs.

How does monetary policy affect the GBP/CHF exchange rate?

Monetary policy decisions by the Bank of England (BoE) and the Swiss National Bank (SNB) play a crucial role in shaping the GBP/CHF exchange rate. Changes in interest rates by these banks can influence currency demand and affect the exchange rate.