The euro-Swiss franc (EUR/CHF) exchange rate could fall below parity, even to $0.97, analysts at investment bank Credit Suisse forecast.
- The SNB raised the interest rate by 50 bps to -0.25% in June
- This is the first hike since 2007
- Significantly, the SNB decided to hike before the ECB
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Frank strengthens, EUR/CHF exchange rate near parity
The Swiss franc continues to strengthen against the euro in response to central bank action. The SNB in mid-June joined the camp of hawkish central banks by surprising the market and raising interest rates by 50 bps. This brought the key interest rate to -0.25%.
The move was justified as a measure to curb inflation: the Swiss CPI stood at 2.9% in May. The SNB has revised its long-term inflation forecasts, leading to higher expectations of a rate hike.
See also:”USDCAD – a possible downward correction”
Furthermore, the Swiss franc is no longer described as ‘highly valued’ by the SNB and currency interventions are no longer just a one-way action, meaning that they have entered the central bank’s toolkit.
– Most of the increase in headline inflation is due to import prices, but domestic prices are also rising. To mitigate price pressures from abroad, the SNB is tolerating a stronger franc in nominal terms, in line with inflation differences between Switzerland and its main trading partners. – Credit Suisse analysts pointed out. – A narrowing of the interest rate differential between the euro area and Switzerland should help this outcome.
-As we see more downside factors to our long-held bearish view on EUR/CHF, we are lowering our target to $0.97 from $0.99. – emphasised analysts at Credit Suisse.
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