EUR/CHF: Likely to remain in a narrow range - Lloyds Bank

According to analysts from Lloyds Bank the EUR/CHF pair is likely to keep trading within a narrow range and they see it ending the year around 1.09.

Key Quotes:

“Elevated political uncertainty and the ensuing demand for safe-haven destinations has renewed upward pressure on the Swiss franc in recent weeks. This has led the Swiss National Bank (SNB) to intervene heavily in foreign exchange markets, and particularly so in the immediate aftermath of the UK’s EU referendum. Since then, the continued rise in SNB’s holdings of foreign currency reserves to a record high, suggests the central bank has remained active.”

“With the deposit rate already at -0.75%, we suspect that the SNB will refrain from lowering interest rates further to weaken the exchange rate. Instead, we believe it will favour further currency intervention. This is likely to keep EUR/CHF trading within a fairly narrow range. We forecast the pair at 1.09 at year end before rising gradually to 1.11 by end 2017. However, more marked inflows into the Swiss franc could lead to a more aggressive approach from the SNB, most likely through a reduction in the level of domestic banks’ reserves that are currently exempt from negative interest rates.”