EUR/CHF Could Stay Above 1.05, Says UBS
February 09, 2022Heading Above 1.05
Swiss franc’s exchange rate has been sliding recently and this could mean the level above 1.05 of EUR/CHF is here to stay, as this pair heads close to 1.06 point – says UBS Global Wealth Management. The major Swiss banks foresees the change of trend in CHF exchange rate. According to its experts the EUR/CHF exchange rate could stay above 1.05 for months to come. The eurozone’s currency rose close to 1.15, its highest level since November, last Friday, which triggered EUR/CHF exchange rate back towards 1.06. The main reason for that was a sentiment on markets that times of negative interest rates in Europe are coming to end. The European Central Bank’s President Christine Lagarde said last week that there us growing uncertainty about the ECB’s inflation outlook, and that there are risks on the way, which made some economists revise their forecasts in favour of possible interest rate rise in the late 2022.
Easing the Pressure
The outlook for interest rates hike can change as it is still early, but just a mere possibility that by the end of the year the ECB might drop the negative 0.5% in favour of positive rates has got market talking. The pressure on the EUR/CHF exchange rate to go down has been eased as a result. This pressure and appreciation of CHF exchange rate are often a trouble for the Swiss National Bank. Economists at UBS became more confident when it comes to outlook for EUR/CHF this year. “The kettle of hawks continues to grow with the BoE and ECB joining the Fed in starting to head towards the exit of their extraordinarily easy monetary policy settings,” stated Valentin Marinov, head of FX strategy at Credit Agricole CIB. The slow shift in forecast of ECB’s policy after possible new assessment of inflation risk was followed by some bunch of eurozone data. Inflation went a bit higher to 5.1% from 5% in January, contrary to many professional outlooks that had predicated 4.4% level.
No Sign of Change in Policy
The ECB might be close to changing mind on its policy by the end of the year, but its counterpart, the SNB is not showing any signs of possible shift in interest rates. “The stronger CHF has shielded Switzerland from the high inflation rates in other G10 countries. Still the SNB remains active in the currency market to prevent too much CHF strengthening,” says UBS’ economics. The inflation level in Switzerland is not as high as in the eurozone or the USA.