Swiss Franc: Franc weakness seen slowing near 0.95 against Euro – Commerzbank

Commerzbank's Michael Pfister notes a significant weakening of the Swiss Franc since July, with the EUR/CHF exchange rate approaching 0.95 as the markets anticipate a tighter European Central Bank (ECB) policy compared to the Swiss National Bank (SNB). Pfister suggests the SNB is content with the current EUR/CHF levels and is unlikely to make significant adjustments to its guidance.

He stresses that the expectations between the Eurozone and Switzerland may not diverge much more, indicating that the EUR/CHF appreciation may slow near 0.95. The weakening Swiss Franc is primarily caused by the rising oil prices and increased expectations for the ECB's tightening. However, the SNB's tightening measures have not been mirrored by the market, leading to a discrepancy in the expected monetary policy tightening by the end of December.

Pfister outlines three possible scenarios for the SNB's decision: officials may consider rebuilding buffers for future interest rate cuts, the authorities may be concerned about the weak franc, or the SNB might be satisfied with the current situation. The most probable assessment is that the SNB is content with the situation, as they have verbally intervened to prevent the franc from appreciating further.

The SNB is expected to raise interest rates due to the rise in oil prices, though not as sharply as the ECB. Pfister strongly believes that the SNB will not introduce any significant changes to its guidance today, merely reaffirming the risks involved. The Swiss National Bank maintains its key policy rates unchanged at 0% as expected by market participants.

The key highlights of the SNB's monetary policy assessment include banks being compensated at the SNB policy rate up to a certain threshold, a projected 2026 inflation rate of 0.7% (previously forecasted at 0.6%), and the main risk to the Swiss economy stemming from global developments.