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A leading Swiss bank tells clients to expect notable downside in the Pound to Franc exchange rate over the course of 2024.

Bank J. Safra Sarasin Ltd says it is "more Swiss franc bullish" than the market consensus while also being "more bearish on sterling" over the coming months.

In a new currency research publication, Claudio Wewel, FX Strategist at J. Safra Sarasin, says he expects the Swiss franc to remain well supported against the backdrop of a highly uncertain global macro outlook.

"Medium term, Switzerland’s inflation advantage should push the currency higher, while it provides a hedge against geopolitical uncertainty," he says.

The Franc was the best-performing major currency of 2023, aided partly by the Swiss National Bank's policy of encouraging a stronger domestic currency.

The British Pound was 2023's second-best performing major, but J. Safra Sarasin says this outperformance won't be repeated.

"Both the weakness in UK activity and the faster than anticipated drop in inflation suggest that the BoE will deliver bigger policy rate cuts than other DM central banks. Moreover, sterling also looks highly valued in real terms," says Wewel.

"We believe that a reversal of the recent pound strength is likely in the near term," he adds.

J. Safra Sarasin forecasts the Pound to Franc exchange rate at 1.07 by the end of the first quarter of 2024, 1.06 by the end of the second quarter, 1.03 by the end of the third quarter and 1.03 by year-end.

The consensus amongst analysts surveyed by Bloomberg sees the exchange rate ending the year at 1.13.