Synopsis:

Danske Bank reflects on the Swiss Franc's recent underperformance as EUR/CHF hits its highest level since June 2023. Predicting further elevation for the currency pair, Danske maintains its outlook for 25 basis points quarterly rate cuts by the Swiss National Bank (SNB), aiming for a policy rate of 0.75% by the year's end. Despite the potential for fundamental strengths to buoy the CHF, current and anticipated rate differentials alongside higher global interest rates are expected to pose challenges for the currency in the near term.

Key Points:

• EUR/CHF Surge: The currency pair's ascent to levels not seen since mid-2023 positions CHF as the notable laggard in recent trading sessions.

• Monetary Policy Forecast: Danske stands by its forecast for the SNB to implement 25 basis point reductions each quarter throughout the year, reducing the policy rate to 0.75%.

• Intervention Stance: Current expectations lean towards the SNB pausing FX interventions, with the March decision underpinning a near-term softer CHF stance.

• Market Forces vs. CHF: Although fundamental factors may support the Swiss currency, prevailing and forecasted rate discrepancies alongside elevated global rates could challenge CHF strength.

• EUR/CHF Outlook: Anticipating EUR/CHF to hover around the 0.98 level in the coming 1-3 months, reflecting the intricate balance between policy actions and market dynamics.

Conclusion:

The recent peak of EUR/CHF signals a period of relative weakness for the Swiss Franc, influenced by Danske's projections of continued SNB rate cuts and a temporary halt in FX interventions. Although intrinsic strengths could underlie CHF's value, the broader context of rate differentials and global interest rate trends may hinder its performance in the near future. Danske's forecast points towards a challenging yet dynamic period for the CHF, with EUR/CHF expected to remain elevated in the short to medium term.