Euro to Swiss Franc (EUR/CHF) Exchange Rate Forecast – Euro Softens Across the Board as SNB Removes Cap
The Euro to Swiss Franc (EUR/CHF) exchange rate broke out of the narrow trading range imposed on it since 2011 during the European session and fell to a record low.
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Euro to Swiss Franc (EUR/CHF) Exchange Rate Falls to 0.8320
The currency market was thrown into turmoil on Thursday after the Swiss National Bank (SNB) decided to go back on previous assertions that it would take any action necessary to defend the Euro to Swiss Franc (EUR/CHF) cap of 1.20.
The cap was introduced in 2011, at the height of the financial crisis, in an attempt to protect the Swiss economy from the fallout in the Eurozone.
The Swiss Franc’s relationship with the Euro has been under considerable strain in recent months as the European Central Bank (ECB) has moved closer to introducing quantitative easing measures, but concerns regarding Swiss deflation saw the SNB introduce negative interest rates last year to help keep the cap in place.
However, the SNB shocked investors and economists by both removing the cap and cutting interest rates further.
The decision initially saw the Swiss Franc gain by over 25% against all of its most traded currency counterparts and saw industry expert Nick Hayek comment; ‘Words fail me! Jordan is not only the name of the SNB president, but also of a river… and today’s SNB action is a tsunami; for the export industry and for tourism, and finally for the entire country’.
The Euro to Swiss Franc (EUR/CHF) exchange rate hit a low of 0.8597
The development prompted this response from currency strategist Geoffrey Yu; ‘Clearly they are seeing a lot of inflows coming and deciding the cost is too high. They think too much money is going to come in after QE so they need a plan B. It’s very surprising.’
Similarly, forex strategist Jeremy Stretch observed; ‘We’ve seen substantial moves across a range of currencies. Seemingly [the SNB] decided it’s no longer tenable and they want to try and offset the pressure they’ve been under. They are just looking to ease policy and moving toward a more negative deposit rate as a possible defense line.’
The Euro to Swiss Franc (EUR/CHF) exchange rate had previously hit a high of 1.2011
While the Euro plummeted to a record low against the Swiss Franc after the decision was announced, the common currency also touched fresh lows against a number of its other rivals – including the US Dollar (EUR/USD) and Pound Sterling (EUR/GBP).
As noted by analyst Chris Beauchamp; ‘My initial reaction was that it is a sign the ECB is about to do something, which makes it odd that the reaction has been so negative across European stocks. However, it’s not every day that a central bank pulls the rug out from underneath something in such a massive way, and clearly people are worried that there’s something bigger afoot.’
Euro to Swiss Franc (EUR/CHF) Exchange Rate Forecast
The Euro to Swiss Franc (EUR/CHF) pared its initial decline to a loss of -13.57% but the pairing is likely to continue trending lower in the hours ahead.
Tomorrow further volatility in the pairing could be caused as the Eurozone publishes final Consumer Price Index figures for December. Economists are expecting a positive revision to be made to the currency bloc’s month-on-month decline.
EUR/CHF trading will also be affected by Swiss retail sales data for November. Sales were shown to have increased by 0.3% on the year in October. Investors will be hoping for a stronger annual figure in November.
The Euro to Swiss Franc (EUR/CHF) exchange rate is currently trading in the region of 1.0416
The Pound Sterling to Swiss Franc (GBP/CHF) exchange rate is currently trading in the region of 1.3530
The US Dollar to Swiss Franc (USD/CHF) exchange rate is currently trading in the region of 0.8615