Caught between the SNB and the flight to safe havens – Commerzbank

The market turmoil of a few weeks ago led to strong demand for safety, which naturally benefited the Swiss Franc (CHF). In EUR/CHF terms, we narrowly missed an all-time low. Since then, the situation has calmed down somewhat. We expect moderate CHF weakness in the coming months as the SNB is likely to cut interest rates further. However, this is unlikely to go too far, ie to parity, notes Michael Pfister, FX analyst at Commerzbank.

EUR/CHF to weaken only slightly

“Concerns about the global economy came to a head a few weeks ago when the US labor market disappointed. As a result, investors exited riskier assets and safe-haven assets – including the CHF – benefited significantly. However, this was only the tip of a trend that started a few weeks earlier. In mid-July, EUR/CHF was still trading just below 0.98, and just two weeks later it was close to an all-time low of just below 0.93.”

“CHF is likely to suffer from such an outcome. Therefore, we continue to expect slightly higher EUR/CHF levels in the coming months. This may not look like a very pronounced movement at first glance. However, it is important to keep in mind that the increased global demand for safe-haven assets is unlikely to disappear completely due to the current uncertainties.”

“These uncertainties are likely to delay the EUR/CHF peak. Specifically, we don’t expect to see a peak until the first half of 2025, when global uncertainties about the business cycle will fade and the ECB will cut rates less than expected. The tide is likely to turn in the second half of the year as it becomes clearer that eurozone inflation will remain slightly above target. However, we expect EUR/CHF to weaken only slightly as the SNB is likely to keep a close eye on the CHF.”