The market turbulence a few weeks ago led to a strong demand for security, which of course benefited the Swiss franc (CHF). The EUR/CHF exchange rate narrowly missed an all-time low. The situation has now calmed down somewhat. We expect moderate CHF weakness in the coming months, as the SNB is likely to cut interest rates further. However, it should not go too far, i.e. to parity, notes Commerzbank foreign exchange analyst Michael Pfister.
EUR/CHF is likely to be only slightly weaker
“Concerns about the global economy reached a sudden peak a few weeks ago when the US labor market disappointed. As a result, investors withdrew from riskier investments and safer investments – including the CHF – profited significantly. However, this was only the tip of a trend that had started several weeks earlier. In mid-July, the EUR/CHF rate was still trading at just under 0.98 and just two weeks later it was close to its all-time low of just under 0.93.”
“The CHF is likely to suffer from such an outcome. We therefore expect EUR/CHF values to continue to be slightly higher in the coming months. This may not look like a very pronounced move at first glance. However, it is important to remember that the increased global demand for safe-haven assets is unlikely to disappear completely due to the current uncertainties.”
“These uncertainties are also likely to delay the peak in the EUR/CHF pair. Specifically, we expect a peak only in the first half of 2025, when global uncertainties about the economic cycle are likely to subside and the ECB will cut interest rates less than expected. The tide is likely to turn in the second half of the year, as it becomes clearer that euro area inflation will remain slightly above target. However, we expect only a slight weakening in the EUR/CHF pair, as the SNB will likely keep a close eye on the CHF.”
