CHF Update: Consolidation below parity in EURCHF is unlikely

While the Swiss franc is considered a global safe haven, we have long argued that its haven attributes are more acute during periods of regional risk. This has been visible over the past weeks, as rising political and economic risks have significantly impacted the European growth outlook. Measured against the euro, our preferred expression for CHF in haven terms, the Swiss franc has outperformed against other haven currency expressions, such as the broad US dollar and USDJPY. The franc’s rally has resulted in EURCHF trading close to, and briefly below, parity. However, despite speculation that a break lower could be on the cards, we think the likelihood of such a scenario is limited. Should geopolitical conditions deteriorate, we think the SNB will embark on further FX intervention, with a more substantial downturn likely to result in the SNB re-introducing a floor on EURCHF, although this is an extreme tail risk.

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Author: Simon Harvey, Head of FX Analysis

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