According to analysts from Danske Bank lingering tensions over Italian fiscal sustainability are a possible source of CHF strength looming ahead of the new government’s September budget. They also see that with the European Central Bank on hold, the Swiss National Bank has little room to ‘normalise’ policy as it still needs to avoid a lower EUR/CHF.
Key Quotes:
“EUR/CHF has failed to make a firm break of the SNB’s old 1.20 floor and is currently hovering at levels well below as an Italian debt risk premium has been factored in and the euro has come under pressure from a hiking-hesitant ECB. Both of the latter factors combined with an SNB that is eager to see EUR/CHF on a sustained course above 1.20 before changing its policy stance, will in our view keep the cross below 1.20 for now.”
“We think the SNB will remain reluctant to change its course with the first ECB hike still distant which should allow EUR/CHF to edge gradually higher into 2019 as the era of negative rates slowly grinds to an end.”
“We have lowered our near-term EUR/CHF profile due to the level shift
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