EUR/CHF likely to trade around 1.18 by end-2018 – Lloyds Bank

The euro had reached a psychological ceiling against the Swiss franc. After having tested 1.20 several times over the past two months, EUR/CHF has dropped sharply, even as global risk confidence has improved, noted Lloyds Bank in a research report. This might reflect the market’s concern that political problems in Italy and Spain have just been resolved temporarily and are expected to resurface in the near future.

Domestically, the Swiss economy continues to perform well. The economic growth had expanded to 2.2 percent on a year-on-year basis in the first quarter of this year, from 1.9 percent year-on-year previously. Meanwhile, inflationary pressures continue to be comparatively weakened and so the Swiss National Bank is under little pressure to tighten monetary conditions.

Furthermore, Governor Jordan is still unhappy with the extent of CHF strength and reiterated that raising interest rates would be “premature at this juncture”. However, given that the ECB is expected to hike its policy rates in the third quarter of 2019, the interest rate differential might be a sidelined driver in the months ahead.

“The prevailing themes suggest EUR/CHF is likely to remain within a range. We forecast 1.18 at end-2018”, added Lloyds Bank.

At 21:00 GMT the FxWirePro's Hourly Strength Index of Swiss Franc was bearish at -77.282, while the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -104.535. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex