The CHF has depreciated against the euro in the past month by around 3%. This pushed the EUR/CHF pair to more than 1.10, helping alleviate pressure on the Swiss central bank to loosen monetary policy in the near term. The central bank officials, however, continue to repeat that the Swiss franc continues to be overvalued. Several valuation metrics indicate that the CHF is about 20% more than its long-term ‘fair value’. The CHF faces an upside risk in the near term due to the ongoing political risk throughout the EU.
SNB President Jordan mentioned that he is ready to implement further easing measures if required to weaken the currency. But as the Swiss franc has not gained sharply, the SNB is unlikely to further lower interest rates, said Lloyds Bank in a research note. The central bank is expected to support direct currency intervention and lower the exemptions level that “deposits face from negative rates”, added Lloyds Bank.
“We expect a gradual depreciation of the CHF, with EUR/CHF forecast to end 2016 at 1.11”, noted Lloyds Bank.
