Euro to Swiss Franc Currency Forecast: BofA, deVere Group See Parity as the new Norm
The Swiss franc charged like a bull out of the gates after the Swiss National Bank said it ditched its three-year-old cap of 1.20 against the euro.
In a hugely surprising move, the SNB this morning removed the 1.20 EUR/CHF exchange rate floor, cut the rate charged on sight deposit balances to -75bps, while keeping the thresholds on which this is imposed intact.
“Never seen before volatility descended on currency markets after Switzerland’s central bank in a surprise and questionable move yanked the lid off its currency against the euro,” says Joe Manimbo at Western Union.
“The Swiss franc charged like a bull out of the gates after the Swiss National Bank said it ditched its three-year-old cap of 1.20 against the euro, a move that was designed to guard against deflation taking hold of the export-driven Alpine economy,” continues Manimbo
The impact on the Swiss economy will be significant.
“The SNB will also now suffer a very large loss on its foreign exchange reserves (the euro portion alone has dropped by more than 30bn in value today) and the economy will take a big hit, in turn reducing the attractiveness of CHF assets,” says George Saravelos at Deutsche Bank.
Forecasts for the Euro vs Swiss Franc in 2015
The Euro/Swiss Franc will ultimately trade at around 1.00 franc, predict Bank of America as well as the Head of Foreign Exchange at one of the world’s largest independent financial advisory organisations.
Myria Kyriacou, FX strategist at Bank of America Merrill Lynch says:
"The move in EUR/CHF is without historical precedent in the cross since the dissolution of Breton Woods. There is currently little in the way of meaningful support or resistance, and it will likely take time for the currency to settle at a new equilibrium.
"We move our projections to target EUR/CHF at 1.00 by the end of Q1 and 1.04 by year-end, cognizant that the conditions that determine our forecasts can change rapidly in this environment. Higher volatility in CHF for the time being at least can be expected."
James Stanton, from deVere Group, which has $10bn under advice, comments after the Swiss Franc soared this morning (Thursday) by 30 per cent as the Swiss National Bank (SNB) abandoned its cap on the Franc’s value against the euro.
Stanton observes:
“This is the biggest FX shocker in years and it is likely to create more volatility in the short term.
“A central bank does not act in such a dramatic way very often, it’s a ‘once in a blue moon’ event and it has taken the currency markets by surprise. It’s the biggest single move in one day on currency markets and trading today has been defined by wide-spread deleveraging and panic-selling.
“This action taken by the SNB, it can be reasonably assumed, is in response to expectations that the ECB is to imminently launch quantitative easing (QE), which would reduce the single currency’s strength and will add further pressures to the Euro in the medium term.”
deVere’s Head of Foreign Exchange concludes: “Once the chaotic trading has calmed and the dust on this FX shock has settled, we would expect the Euro/Swiss franc will trade at around 1.00 francs.
“Whilst this volatility triggered by the scrapping of the cap will need to be carefully monitored, the radical development that we have experienced today will also present real opportunities.”
How Will it Impact the Euro Dollar Exchange Rate?
The euro dollar rate and other euro pairs will also be impacted by today’s action at the SNB.
George Saravelos at Deutsche Bank does however tell us while the impact will be negative on EUR/USD the downside will be contained:
“At face value, the SNB policy move signals a declining willingness to accumulate FX reserves, which naturally led to SNB euro selling via reserve diversification.
“However, this signal has to be tempered against two factors. First, given the hugely disruptive move of EUR/CHF on the domestic economy and likely rising disinflationary pressure, it is unclear that SNB intervention will cease - even if this is not to defend the 1.20 floor but to stabilise the market at lower levels.”