Via UBS on the CHF, EUR and USD.
Firstly, on EUR/CHF:
- UBS forecast EURCHF will trade in a 0.95 to 1.00 range, despite it being just under 0.95 as of the date of the note
- its end Q1 forecast is 0.97
EURCHF has rebounded from under 0.93 late in 2023 and into the beginning of the year. UBS says that drop was due to
- investors reducing EUR exposure and jumping into CHF safety over the thinly traded holiday period
- major central banks signalling openness to rate cuts at the margin, meaning a reduced yield advantage for EUR and USD
- steady fall in EURCHF last year was SNB policy promoting CHF strength, appreciation of the Swissy helped reduce imported inflation
Looking ahead (see forecasts above) expect EURCHF to rise in response to European Central Bank policy:
- ECB likely to only slowly respond to falling inflation, resulting in a rise in real rates in the eurozone, thus supporting EUR
UBS caveat this with the warning that the EUR to be supported this way as long as the EZ doesn't all into recession
UBS point out two policy shifts from the Swiss National Bank in recent months:
- In December the Bank said potential forex market interventions can be two-sided, the SNB is no longer solely focused on selling foreign currencies
- SNB President Jordan said in an interview at the World Economic Forum meeting in Davos earlier this month that Switzerland's inflation has become less of a concern, and his concerns now centred on the strong CHF's negative impact on business.
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Also, separately, on the USD, analysts at the bank say:
- USD buying looks very stretched
- Hedge funds have purchased 3.2 standard deviations of USD over the past two weeks
- EUR/USD could see a rebound if PMI data shows improvement
