Euro-Franc's Path to Parity Intact: Barclays

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The Franc will continue to weaken thanks to further rate cuts at the Swiss National Bank.

This is according to a research update from FX analysts at Barclays, who continue to forecast a grind towards parity for Euro-Franc.

The Euro to Franc exchange rate has fallen in two of the past three months, and could be set to record a third consecutive decline.

The price action suggests the Euro's return to 1:1 against the Franc has stalled, however, Barclays says this is to be expected.

The bank's thesis is that the return to parity will happen "at a slower pace, as political risks have resurfaced in Europe and abroad."

Yet, fundamentals continue to support the case for more easing by the Swiss National Bank, say analysts.

Above: Euro-Franc's return to parity is still intact.

Further rate cuts are expected from the SNB "given downside risks to inflation from weak demand conditions, the evolution of rents and bouts of FX strength."

Barclays thinks Swiss inflation is comfortably settling below the 2.0% target level and that the SNB might prefer to use interest rate policy to achieve a weaker Franc, as opposed to intervening directly in foreign exchange markets.

"The Q1 intervention data did not reveal much appetite for FX reserves buying during the window of franc strength in January, either. This casts some doubt on the SNB's willingness to intervene actively during episodes of excess franc strength, but also implies more active use of interest rate policy and deeper rate cuts," says Barclays.

Accordingly, analysts think the market's current pricing of two more 25bp cuts should not be seen as particularly excessive.