EUR/CHF: We Expect Gradual CHF Depreciation - Lloyds
Analysts from Lloyds Bank expect a gradual depreciation of the Swiss franc and EUR/CHF to end the current year around 1.11.
Key Quotes:
“Over
the past month, the Swiss franc has fallen by around 3% against the
euro, pushing EUR/CHF above 1.10. This has helped ease the immediate
pressure on the Swiss National Bank to ease policy in the near term.
Despite this, SNB officials have continued toreiterate that the CHF
remains overvalued, with various valuation metrics suggesting that the
currency is around 20% above its long-term ‘fair value’.”
“Near
term, ongoing political risk across the EU represents an upside risk to
the Swiss franc given its safe-haven status. SNB President Jordan has
reiterated his commitment to deploy further easing measures, if
warranted, to lower the attractiveness of the currency.”
“In the
absence of a sharp appreciation of the currency, we suspect that the SNB
will refrain from lowering interest rates further. Instead, it is
likely to favour direct currency intervention and reductions to the
level of exemptions that deposits face from negative rates. Given this,
we expect a gradual depreciation of the CHF, with EUR/CHF forecast to
end 2016 at 1.11.”