Upward pressure on CHF likely to be limited, EUR/CHF to trade at 1.11 by end-2016

Given the CHF’s safe-haven status, the Swiss franc continues to face upside risks from the increasing political risk throughout the EU, in spite of the ECB’s recent easing of policy, according to Lloyds Bank. Several officials of the Swiss National Bank have repeated that the Swiss franc continues to be highly overvalued. Several valuation metrics imply that CHF is about 25% higher than its long-term ‘fair value’. EUR/CHF has dropped around 3% since peaking in early February.

SNB President Jordan has stated that in order to decrease the CHF’s attractiveness, additional easing measures might be implemented. But the central bank is expected to avoid cutting rates further in the absence of CHF’s sharp appreciation, noted Lloyds Bank. However, the central bank is expected to support currency intervention.

“We expect upward pressure on CHF to be limited, with EUR/CHF ending 2016 at 1.11”, added Lloyds Bank.