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EUR/CHF likely to rise gradually to 1.11 by end-2017

An increase in safe-haven flows exerted considerably upward pressure on the Swiss currency in the immediate aftermath of the Brexit vote. Certain air of stability has come back to the U.K. economic outlook; however, the continued increase in the Swiss National Bank’s holdings of foreign currency reserves to a record high implies that the SNB has continued to stay active, said Lloyds Bank in a research note.

Given that the deposit rate is already at -0.75 percent, it is likely that the Swiss National Bank would refrain from cutting rates further to lower the Swiss franc’s attractiveness. The central bank is expected to continue preferring additional direct currency intervention. But additional marked inflows into the CHF might increase the risk of additional aggressive measures by the Swiss National Bank.

The most probable method might be by lowering some of the exemptions that deposit holders face from negative interest rates. This is expected to keep the EUR/CHF currency pair trading in quite a narrow range.

“We forecast the pair at 1.09 at year end before rising gradually to 1.11 by end 2017”, added Lloyds Bank.

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