The euro will likely weaken further against the Swiss franc over the next weeks, according to anañysts at TD Securities. They consider the EUR/CHF cross could target 0.95 over the next 1-2 months, while it remains under 0.9890.
“Despite the ECB (European Central Bank) delivering a 50bp 'surprise' hike alongside an anti-fragmentation tool, the decision in totality appears to be more of a faux-flex and likely marked peak hawkishness. While adopting a "meeting by meeting" approach to rate decisions might introduce more policy optionality in the curve, it seems the ECB was reluctant to commit to being as aggressive going forward. They also seemed to confirm that more policy aggression now is borrowing from tightening in the future.”
“Data is only going to get worse from here and Germany is likely to be at the heart of it. We believe the EZ is headed for recession in H2 (unlike the ECB), so the capacity for aggressive hikes amid weak growth and an impending energy crisis is constrained. The latter will receive significant focus given shortage concerns.”
“We think the SNB (Swiss National Bank) is willing to allow FX strength to help offset import price inflation. That, alongside a more supportive current account backdrop (unlike the implosion in the EZ) allows the CHF to be used to diversify away from well-populated USD longs. Indeed, we are concerned that the USD may be on a tactical pause.”
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