EUR/CHF likely to trade at range between 1.07 and 1.10 over next few quarters

The Swiss franc has faced significant upward pressure due to a rise in safe-haven related flows triggered in the wake of the U.K.’s vote to leave the European Union. Still, the Swiss franc’s appreciation has been limited by the Swiss National Bank’s continued intervention in the foreign exchange markets as was seen by the persistent increase in the Swiss central bank’s holding of foreign currency reserves that had greatly kept the EUR/CHF pair trading in a fairly narrow range between 1.07 and 1.10, said Lloyds Bank in a research report.

Given that the deposit rate is already at -0.75 percent, the Swiss National Bank is unlikely to further lower interest rates in order to reduce the attractiveness of its currency. Instead, it might continue to favour further direct currency intervention, according to Lloyds Bank. But additional noticeable inflows into Swiss franc might increase the risk of additional aggressive measures by the central bank.

The most likely method for the SNB might be to lower certain exemptions that deposit holders face from negative interest rates. Such actions might continue to stem the upward pressure on the Swiss franc keeping the EUR/CHF range at around 1.07 and 1.10 in the next few quarters, added Lloyds Bank.

At 11:42 GMT, the EUR/CHF pair is trading at 1.0734. Meanwhile, at 11:00 GMT, the FxWirePro's Hourly Strength Index of Euro was bullish at 90.6896, while the FxWirePro's Hourly Strength Index of Swiss Franc was neutral at -37.2874. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex