After the UK’s Consumer Price Index inflation data for August came out higher than expected on Tuesday, speculation that the Bank of England would be taking on a more hawkish stance during Thursday’s monetary policy decision boosted the British pound dramatically against other currencies. On Wednesday, however, the UK’s average earnings index (3-month average ending in July, compared to the same period a year earlier) fell short of expectations at 2.1% against a prior consensus forecast of 2.3%. This put somewhat of a damper on the hawkish BoE thesis, prompting the pound to pare some of Tuesday’s gains. Despite the lower-than-expected wage growth, however, other aspects of the jobs data beat expectations, including another multi-decade low in the UK unemployment rate and a surprise decrease in unemployment claims for August.
While the mixed data outcomes between Tuesday’s consumer inflation beat and Wednesday’s wage growth miss contribute increased uncertainty regarding the tone and stance of Thursday’s Bank of England decision, one thing should be much clearer. The Bank of England is highly likely to be significantly more hawkish, at least, than the Swiss National Bank, which also issues its monetary policy assessment and Libor rate decision on Thursday. While neither central bank is expected to make any interest rate changes at this time, the contrast in stances between the BoE and SNB has been rather clear. Amid a global trend of increasing hawkishness and monetary policy tightening from several major central banks, the SNB stands rather lonely in its continued dovish leanings, especially given its severe and ongoing concerns over the strength of the “significantly overvalued” Swiss franc against the dollar. At least the BoE is potentially much closer to tightening its monetary policy than the SNB.
In the run-up to these two central bank decisions scheduled for Thursday, sterling has been rallying for at least the past two weeks, and GBP/CHF has been boosted sharply by this run. The currency pair has spent the past two weeks rising in a steep trajectory from around the 1.2200 support area. If Thursday’s BoE and SNB decisions further highlight the contrast in stance between the two central banks, GBP/CHF could have significantly more room to rise. With any such continuation of its bullish run, the currency pair continues to target its next major resistance objective around the 1.2900 level.