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.
“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.”