CHF likely to depreciate slightly against EUR in H2 2016

The Swiss franc has risen by more than two percent against the euro since May-end, pushing the EUR/CHF pair down from more than 1.11 to about 1.085.

Increased political uncertainty in the near term throughout the EU is expected to boost demand for safe-haven assets, providing additional upside risks to the CHF, said Lloyds Bank in a research report. The EUR/CHF is thus likely to move downwards to a fresh year-to-date low. The recent rise in Swiss franc is adding to the growing worries regarding the CHF’s strength, with the Swiss central bank officials continuing to repeat that the Swiss currency remains overvalued.

Currently, the deposit rate is at -0.75 percent. The Swiss National Bank is likely to avert reducing rates further as a way to lowering the CHF’s attractiveness. It is expected to instead prefer direct currency intervention. The CHF is likely to depreciate slightly against the EUR in the second half of 2016 due to diminishing political uncertainty and increase in global interest rates, according to Lloyds Bank.

“We forecast EUR/CHF to end 2016 at 1.13”, added Lloyds Bank.