EURCHF Outlook: SNB’s zero-rate floor to anchor the franc

Following elevated global risk aversion year-to-date, CHF has appreciated markedly against both EUR and USD, despite Switzerland’s 0% policy rate trailing the ECB’s 2%, and the Federal Reserve’s ongoing easing cycle.

Our base case maintains the SNB policy rate at 0% through end-2026, contrasting with an expected ECB hold at 2% and the Fed’s two additional 25bp cuts forecast before year-end 2025.

The SNB’s September minutes confirm a high bar for policy easing. While persistent CHF appreciation presents downside risks to the inflation trajectory, the Governing Board characterizes current settings as appropriately expansionary, reinforcing our conviction that the zero-rate floor remains intact throughout the forecast horizon. We assign a minimal probability to sub-zero rates given the central bank’s inflation projections trending higher in the near-term.

With global risk sentiment gradually improving and volatility subsiding, we foresee the franc losing some of its recent strength, allowing EURCHF to drift toward 0.96 over the next 12 months.

Admittedly, this is a less aggressive appreciation path for the cross than we had previously chosen to pencil in. But we are marking-to-market the franc’s outperformance through 2025 on the back of safe-haven positioning amid persistent geopolitical and trade tensions, rather than overhauling our underlying macro base-case. Notably, CHF strength has persisted despite substantial interest rate differentials – with the SNB maintaining 0%, the ECB steady at 2%, and the Fed in easing mode. That warrants an adjustment in our forward-looking FX view.

Even after this latest forecast tweak, we still expect EURCHF appreciation over time. Forward curve pricing indicates a static ECB policy path well into 2026, while the Fed’s accommodation continues to suppress global yield curves, limiting USD upside potential while creating conditions for a gradual EUR recovery against CHF.

Indeed, Switzerland’s domestic fundamentals remain positive but soft, with inflation printing at 0.2% YoY, GDP growth tracking at 1.0% annualized, and unemployment contained below 3.0%. We expect the eurozone to outperform this through year-end and into 2026, leaving growth differentials favouring EURCHF upside as EU fiscal expansion begins to translate into a meaningful activity improvement across the bloc.

Given this backdrop, the SNB is likely to keep policy unchanged at 0%, tolerating a moderately strong franc temporarily, resisting a return to negative rates.

Chairman Thomas Schlegel’s tone underscores the SNB’s strategy to “wait for external improvements rather than act pre-emptively,” anchoring the policy floor firmly at zero – and while FX interventions remain a tail risk, this would only push back against further franc appreciation, limiting downside risks to our updated EURCHF expectations.

Author:

Barry van der Laan MBA, Senior FX Market Strategist

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