EUR/CHF levels close to parity seem justified – Commerzbank

Inflation in Switzerland is accelerating. Therefore, the Swiss National Bank (SNB) is set to tolerate franc appreciation. Economists at Commerzbank consider EUR/CHF levels close to parity as justified.

Upside scope in EUR/CHF is likely to be limited 

“The inflation rate in Switzerland has climbed above the 3% mark in June. Other central banks would welcome such a level. However, for the SNB it is sufficient reason to show concern about price developments. And that is correct as it is pursuing an inflation target of 0-2%, but inflation has been above this target level for some time now.”

“The important drivers for inflation remain import goods, but prices for domestic goods are also rising increasingly quickly. The SNB’s concerns that there might be second-round effects, therefore, do not seem too far-fetched so further monetary policy tightening over the coming months might become necessary. We are likely to hear comments of this nature from board members of the SNB in the near future and that is likely to support the franc principally.”

“While the risk scenario energy crisis is putting pressure on EUR, EUR/CHF levels close to parity seem justified.”

“High inflation levels suggest that the SNB is more likely to be prepared to tolerate franc appreciation than depreciation. That means upside scope in EUR/CHF is likely to be limited.”