EUR/CHF likely to rally to 1.16 by end-2018 – Lloyds Bank

Over the past month, the Swiss franc has weakened against the euro surprisingly against a backdrop of falling equity prices and some political instability. Usually, such an environment would increase ‘safe-have’ demand for the CHF. On this occasion, possibly the franc’s failure to strengthen is an indication of the degree to which it is considered ‘overvalued’, noted Lloyds Bank in a research report.

The exchange rate’s strength has been a concern for SNB Governor Jordan for some time. He has consistently communicated his unease, which continues to be a factor delaying the tightening of monetary policy.

In the euro area, disappointing regional elections saw Chancellor Merkel announce her plans to stand down in 2021. Moreover, budget-related uncertainly in Italy continues. However, ECB Presidential Draghi repeated the central bank’s plan to end net monthly asset purchases at the end in December and hike interest rates in the second half of 2019.

“Assuming political risks subside and policy rate divergence materialises, we expect EUR/CHF to rally to 1.16 by year-end”, added Lloyds Bank.

At 19:00 GMT the FxWirePro's Hourly Strength Index of Swiss Franc was neutral at -39.7007, while the FxWirePro's Hourly Strength Index of US Dollar was bullish at 75.2372. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex