EUR/CHF to trade under parity this time next year – ING
|The Swiss franc (CHF) has been the strongest G10 currency over the last five days. But CHF's strength over the last 24 hours has been helped by comments from SNB president Thomas Jordan. Given the SNB's focus on a stable real exchange rate, low inflation in Switzerland points to EUR/CHF trading 4% cheaper next year, economists at ING report.
Sea change in Swiss National Bank’s FX attitude
“Central Bank Governor Jordan was quoted saying: ‘The SNB is ready to act if inflation risks materialise’. After all, the SNB has accumulated CHF500bn of FX reserves in fighting CHF strength over the last decade, so surely it would prefer a stronger EUR/CHF? Apparently not. In an important speech made on 29 April, Jordan made the revelatory point that a weaker real Swiss franc exchange rate would be inappropriate given the inflation threat in Switzerland.”
“The SNB wants at least a stable real exchange rate. Given that inflation in Switzerland is running around 4% lower than its main trading partner, the eurozone, one could roughly argue that EUR/CHF needs to be 4% lower in nominal terms over the next year to keep the real CHF stable. That would point to EUR/CHF trading under parity this time next year.”
“The prospect of the SNB outright selling EUR/CHF does seem fanciful right now. But the policy choice of a stronger nominal CHF from the SNB is starting to make the case that EUR/CHF will struggle to sustain any moves above 1.05 over the next 12 months and that our baseline EUR/CHF forecast profile must now be revised lower.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.