EBC Markets Briefing | Sterling extends rally against Swiss franc after policy decisions

Sterling was heading for a third straight day of gains against the Swiss franc on Friday on widening policy divergence between the BOE and the SNB. But a souring market mood helped cap the rally.

The BOE kept interest rates steady at a 16-year high of 5.25% ahead of a July 4 election, but some policymakers said their decision not to cut rates was now "finely balanced".

When a loosening cycle begins will continue to depend on how wage growth and services inflation evolve. Data showed consumer prices in the UK finally slowed to the 2% target in May.

However, economists warned that the drop in headline inflation might prove fleeting, as the impact of falling energy prices wears off. The BOE predicted the reading to rise again later this year.

Elsewhere the SNB cut interest rates for the second time running, pointing to easing price pressures that allowed it to maintain its position as a front-runner in the global policy easing cycle now underway.

The central bank also revised down its inflation forecast to an average of 1.3% this year. After the decision, economists said one more quarter-point move in September a possibility.

The pair failed to break above the immediate resistance at 1.1320 so it seems too early to call a reversal. Another dip below 1.1275 may drive it to 1.1220.

EBC Economic Research Findings Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC Financial News or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.