According to MUFG’s Lee Hardman, the Swiss Franc (CHF) has continued to weaken against the Euro, with the EUR/CHF currency pair reaching a new high of 0.9332 overnight [1]. This movement is attributed to widening yield differentials between the Eurozone and Switzerland, as markets increasingly price in further interest rate hikes by the European Central Bank (ECB) [1]. Specifically, the euro-zone rate market now sees a higher probability of the ECB delivering two additional hikes this year, with at least one more hike anticipated in September unless there is a marked improvement in the inflation outlook, as reported by Bloomberg [1].
In contrast, the Swiss National Bank (SNB) is expected to keep its policy rate on hold at 0.00% until the end of 2027, according to Bloomberg sources familiar with the central bank's thinking [1]. The SNB appears comfortable with the current inflation outlook and has reiterated its willingness to intervene in the foreign exchange market by selling Swiss Francs only in the event of rapid and excessive appreciation, which is not currently deemed necessary [1].
The divergence in monetary policy between the ECB and SNB is exerting downward pressure on the Swiss Franc, favoring further losses against the Euro [1]. MUFG’s analysis highlights that the policy gap is a key driver behind the recent currency movements [1].
CONCLUSION
The widening policy gap between the ECB and SNB is leading to further weakness in the Swiss Franc against the Euro, with markets anticipating additional ECB rate hikes while the SNB remains on hold. This divergence is expected to continue pressuring the CHF, according to MUFG.