EUR/CHF likely to trade above 1.20 by end-2019 – Lloyds Bank

The global equity markets continue to be impacted by geopolitical risks, and the escalation of trade tensions between the U.S. and China. The associated deterioration in risk sentiment has seen the Swiss franc appreciate against the euro, with EUR/CHF falling towards its recent lows, noted Lloyds Bank in a research report.

Nevertheless, the fundamentals imply that, perhaps, the currency pair should be moving in the other direction. The Swiss third quarter growth had dropped sharply to 2.4 percent year-on-year and inflation has eased below 1 percent in November. Combined with the SNB’s view that the Swiss franc is “overvalued”, these economic developments leave Governor Jordan and co. unlikely to change their policy levers over the months ahead, said Lloyds Bank.

The picture in Europe is a bit different. Despite the mixed economic picture, ECB communications imply policy normalisation is imminent, with the first interest rate hike likely occurring by the end of next year.

“Should geopolitical risks subside and monetary policy divergence materialises, we expect EUR/CHF to rally above 1.20 over our forecast horizon”, added Lloyds Bank.

At 14:00 GMT the FxWirePro's Hourly Strength Index of Swiss Franc was neutral at -0.003997, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 37.6591. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex