UBS Sees EUR/CHF Falling Amid Interest Rate Cut By Investing.com

UBS revised its forecast for the currency pair, anticipating a slight decline to 0.93 in the second half of 2024. The soft landing of the global economy was favorable for the euro, but Europe’s disappointing growth outlook limited the pair’s gains. After recovering from a dip to 0.92 in early August, EUR/CHF has stabilized around 0.95.

The Swiss National Bank (SNB) is expected to make a final interest rate cut in September, ending its easing cycle, while other central banks may continue to cut. The European Central Bank (ECB) is expected to cut its interest rate by at least another 50 basis points this year, which would narrow the rate gap with Switzerland and could support the Swiss franc (CHF).

Economic growth on the continent has been stagnant, and fiscal consolidation efforts could dampen the positive effects of lower rates. In addition, uncertainty from political developments over the summer is expected to keep uncertainty high, favoring the CHF against the EUR.

Despite the Euro being supported by falling global yields, the lack of enthusiasm from both a growth and geopolitical perspective in the Eurozone is likely to drive EUR/CHF lower in the coming months.

The main risk identified by UBS is the central bank’s reaction to a rapid appreciation of the CHF. Early August saw speculation about SNB currency interventions, but UBS believes the central bank will continue to prioritize interest rates while they remain in restrictive territory.

On investment considerations, UBS departed from its previous guidance of a range of 0.95-1.0 for EUR/CHF. The firm now sees the currency pair falling, with expected resistance in the 0.96-0.97 range and support near 0.92.

However, if growth in Switzerland weakens more than expected, or if the SNB signals its displeasure with the CHF’s strength and moves to weaken it, EUR/CHF could remain around 0.95, UBS noted.

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