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EUR/CHF now trades closer to 1.09 than 1.10, as US real rates have moved lower. However, there has been a clear and important shift in US monetary policy with the Fed rhetoric turning increasingly hawkish. The shift has triggered a rebound in the USD, which is set to drive the EUR/CHF pair higher, according to economists at Danske Bank.

Fed is turning increasingly hawkish

“We still see a case for higher US real rates, especially now the Fed is turning more hawkish. We expect this will send EUR/CHF higher although we think most of the increases are now behind us. We still expect EUR/CHF to trade around 1.13 in 12M.”

“The key for the pair is if the global macro becomes so good in Europe that markets start talking about ECB rate hikes. Today, such a scenario is not in play. A setback in risk sentiment is another joker.”