|

Why the Swiss Franc isn’t likely to move far from 0.9200 against the Euro

The Swiss Franc (CHF) trades in a tight range against the Euro (EUR) as the Swiss National Bank (SNB) actively works to neutralize safe-haven capital inflows stemming from increased geopolitical woes. 

While the European Central Bank's (ECB) restrictive monetary policy and recent rate hikes have provided a steady tailwind for the Euro, the SNB has leaned heavily into direct foreign exchange interventions to prevent an excessive appreciation of the Franc. Consequently, macro analysts project a period of near-term consolidation for the cross.

EUR/CHF daily chart. Source: FXStreet.

ECB hawkishness shields Euro from safe-haven Swiss Franc strength

Senior FX strategy experts at Rabobank note that the persistent hawkishness of the ECB has effectively relieved the intense downward pressure that previously plagued the EUR/CHF exchange rate. Although a modest rebound in the pair from its recent lows has raised some concerns about imported inflation creeping into Switzerland during the third quarter, the Euro remains structurally supported by the contrast in central bank postures. If Eurozone policymakers extend their tightening cycle, it could eventually force the SNB to contemplate its own move toward the turn of the year.

That said, the hawkishness of the ECB will have relieved some pressure on the EUR/CHF exchange rate and thus on the SNB. We expect further consolidation around the EUR/CHF 0.92 area on a 3-month view with potential for a slight upside bias reflecting ECB hawkishness.

SNB relies on active currency intervention to curb Franc appreciation

Rabobank highlights that the SNB has been pushing back against speculative Franc buying. Official data confirms that the central bank purchased billions in foreign currency during the first quarter to actively depress the local currency's value. With domestic inflation remaining low and growth risks appearing modest, SNB President Martin Schlegel has reaffirmed that direct market intervention remains the bank’s preferred first line of defense.

For now, we expect that the SNB’s focus will remain on emphasising that FX intervention is a policy tool with the aim of dissuading speculative buying and preventing the CHF from appreciating.

Analysts anticipate a range-bound trajectory for the Euro-Swiss cross

Banks anticipate a range-bound near-term trend for the EUR/CHF pair. Rabobank projects that the currency cross will closely orbit the 0.9200 threshold over a three-month horizon, supported by a mild upside bias from the ECB's relative hawkishness. However, because any aggressive appreciation of the Swiss Franc will be met with swift, unannounced currency sales by the SNB, the pair is expected to remain firmly trapped in a well-defined lateral band for the foreseeable future.

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Author

FXStreet Insights Team

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

More from FXStreet Insights Team
Share:

Editor's Picks

AUD/USD bulls regain control above 0.6950 amid USD retreat

AUD/USD regains traction and extends the previous day's bounce from the weekly low, aiming for 0.7000 in Asia on Friday. The overnight pullback in US bond yields keeps the US Dollar below an 18-month high, which in turn offers some support to the pair. Meanwhile, hawkish RBA expectations also keep the major underpinned.

USD/JPY holds gains near 158.00 after Japan's weak Household Spending data

USD/JPY clings to gains around 158.00 after data showed on Friday that Japan's Household Spending fell for the ninth straight month, undermining the Japanese Yen. Meanwhile, the US Dollar remains depressed as the overnight fall in US bond yields counters a hawkish Fed and geopolitical uncertainties, could cap any downside in the pair.

Gold remains range-bound below $4,200

Gold has given up some ground after an initial bullish attempt to reach weekly highs, returning to below the $4,200 mark per troy ounce on Friday. The US Dollar’s strong upside momentum, combined with rising US Treasury yields across the curve, seems to keep further gains in the yellow metal under scrutiny.

Week ahead: US CPI, France’s budget crisis and Q3 earnings to set the market tone
The US dollar held relatively strong this week, despite the disappointing US jobs report on October 2, which further decreased the probability of a back-to-back rate hike by the Fed at the upcoming gathering on October 28.
CFTC Report: Euro and Aussie shorts expand amid diverging signals

The week in one sentence: Euro and Australian Dollar shorts deepened in the week to October 6, while Yen longs rebuilt. In addition, Coffee buying continued, and Gold exposure remained elevated despite another price decline. Speculators turned more negative on the Euro, increasing the net exposure to around 99.3K contracts.

Has Bitcoin really escaped the macro forces it was built to fight?
Over 17 years ago, Satoshi Nakamoto designed Bitcoin (BTC) on the back of a global financial crisis as an alternative to the global monetary system outside the control of central banks, governments and traditional intermediaries. This raises a key question: has Bitcoin really become independent of the macroeconomic forces it was built to challenge?