UBS revised its forecast for the currency pair down slightly to 0.93 in the second half of 2024. The soft landing of the global economy has been good for the euro, but disappointing growth prospects in Europe have limited the pair’s advance. After recovering from a low of 0.92 in early August, the EUR/CHF pair has stabilized around 0.95.
The Swiss National Bank is expected to cut interest rates one last time in September, ending its easing cycle, while other central banks may continue to ease. The European Central Bank is expected to cut rates by at least another 50 basis points this year, which would narrow the interest rate gap with Switzerland and potentially support the Swiss franc.
Economic growth on the continent has remained stagnant, and fiscal consolidation efforts are likely to offset the positive effects of lower interest rates. In addition, the uncertainty generated by political developments over the summer is expected to keep uncertainty high, favouring the Swiss franc over the euro.
Although the euro is supported by lower global yields, the lack of enthusiasm in the eurozone in terms of growth and the geopolitical situation is likely to push the EUR/CHF pair lower in the coming months.
The main risk identified by UBS is the central bank’s response to the rapid appreciation of the Swiss franc. Speculation about the SNB’s intervention in the foreign exchange market was noted in early August, but UBS believes that the central bank will continue to prioritize interest rates while remaining in restrictive territory.
In terms of investment considerations, UBS has moved away from its previous guidance of 0.95-1.0 for EUR/CHF. The bank now expects the currency pair to head lower, with resistance expected in the 0.96-0.97 range and support near 0.92.
However, if Swiss growth weakens more than expected, or if the Swiss National Bank signals its displeasure with the strength of the Swiss franc and takes action to weaken it, the EUR/CHF pair could remain around 0.95, UBS noted.
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