Swiss Franc: Weakness before renewed strength – Commerzbank

Commerzbank FX analyst Michael Pfister argues that the Swiss Franc (CHF) will stay under pressure through 2026 as markets gradually price out expectations of a Swiss National Bank (SNB) rate hike. He highlights subdued Swiss inflation, limited SNB intervention capacity, and widening rate differentials versus the European Central Bank (ECB), but expects the Franc to recover in 2027, with EUR/CHF stabilizing near 0.94 in Q3.

SNB expectations cap near term CHF

"A few weeks ago, reports emerged suggesting that the SNB might keep interest rates unchanged until the end of 2027. Despite these reports, the market is still pricing in the first rate hike by mid-2027. This seems unlikely, given the current inflationary trend."

"We strongly believe that Swiss inflation is likely to remain subdued in the coming months. Consequently, the market will have to gradually adjust its expectations. Despite reports of the SNB’s internal forecast, the first interest rate rise is still expected by the middle of next year."

"But the SNB is probably quite happy to see these expectations gradually priced out. If the ECB raises its key rate for a second time in September, as we expect, the rate differential will widen further. This will exert further downward pressure on the franc."

"The Swiss franc is thus likely to continue facing difficulties until the end of the year, before recovering next year."

"In the medium term, however, the SNB is unlikely to be able to prevent the franc from appreciating again. Once the remaining expectations of rate hikes have been priced out, the SNB's limited options for weakening the franc will become apparent once again: it is not willing to intervene more aggressively, and its ability to cut interest rates is limited."

"We therefore continue to expect EUR/CHF to stabilise at 0.94 by the end of the third quarter."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)