EUR/CHF likely to appreciate to 1.21 by end-2019 – Lloyds Bank

At the end of May, the euro had reached a twelve-month low against the Swiss franc, falling below 1.14. Since then, the EUR/CHF pair has consolidated in its medium-term range. Domestically, the Swiss economy continues to perform well. In the first quarter GDP growth rose to 2.2 percent year-on-year, while the jobless rate is at 2.4 percent from 3 percent last July.

Yet, this is not expected to translate into higher interest rates in the near term. Inflation continues to be subdued at 1.1 percent. Furthermore, the Swiss National Bank are worried about the possibility of CHF strength further stifling inflation.

In the meantime, the ECB expects to end its asset purchase program in December and hike interest rates in the third quarter next year, noted Lloyds Bank in a research report. The effect of this policy divergence should drive German-Swiss interest rate differentials to broaden and apply upward pressure to EUR/CHF.

“We expect the currency pair to gradually appreciate to 1.21 by end-2019. The main threat to our central case comes from the CHF ‘safe-haven’ demand due to increased global trade tensions”, added Lloyds Bank.

At 20:00 GMT the FxWirePro's Hourly Strength Index of Australian Dollar was highly bearish at -117.358, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 29.2549. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex