Commerzbank’s Michael Pfister notes that the Swiss franc has experienced significant weakness since July, with the EUR/CHF exchange rate rising from around 0.92 to occasionally approaching 0.95. This movement is attributed to a notable increase in oil prices and heightened expectations for European Central Bank (ECB) tightening, while the market has not priced in a similar degree of tightening from the Swiss National Bank (SNB) [1]. As a result, the expected difference in monetary policy tightening between the Euro area and Switzerland by the end of December has more than doubled [1].
Pfister outlines three possible outcomes for the SNB’s upcoming decision: rebuilding a buffer for future interest rate cuts, responding to the weak franc, or being satisfied with the current developments. He argues that the SNB is likely comfortable with the higher EUR/CHF level and will keep its guidance largely unchanged. The SNB is expected to raise interest rates following the rise in oil prices, but not as aggressively as the ECB [1].
The analysis suggests that the SNB is less inclined to intervene strongly in the currency markets as it did four years ago, given that inflation remains subdued. Instead, the SNB appears content with the recent franc weakness, as higher EUR/CHF levels align with its current policy stance. Market participants believe the SNB is capable of responding to higher inflationary pressures if necessary, but expectations for further divergence between the Euro area and Switzerland are limited, indicating that EUR/CHF upside may slow around 0.95 [1].
CONCLUSION
The Swiss franc's recent weakness is seen as largely in line with the SNB's current policy preferences, with the central bank expected to maintain a cautious approach. Market expectations for further EUR/CHF upside are limited, suggesting a stabilization near the 0.95 level as policy divergence between the ECB and SNB reaches its peak.