Appreciation pressure on Swiss franc likely to remain in near future, says Commerzbank

On a medium-term perspective, the EUR/CHF pair is expected to trade in a range of about 1.08, according to a Commerzbank research report. The European Central Bank is expected to continue with its monetary policy in the near future so that the appreciation pressure on the Swiss franc is expected to remain. Meanwhile, the Swiss National Bank would be averting the appreciation of the currency with the assistance of regular interventions. This signifies that it has to accept an extension of its balance sheet, stated Commerzbank.

But, the Swiss central bank might be able to maintain this strategy in the long term. At certain point, it might have to decide if it would continue to avert the appreciation of the CHF in order to keep its inflation target or whether it considers the continuous increase of the foreign exchange reserves to be a bigger risk and thus ends the interventions, noted Commerzbank.

It is possible that in the end, the inflation target might draw the short straw, as has happened before in January 2015. Once the Swiss central bank abandons its strategy, the EUR/CHF might depreciate like a stone.

“The timing of such a downward movement is difficult to forecast, but the risk of it occurring should not be underestimated”, added Commerzbank.