EUR/CHF: Price level divergence to push the pair lower – Danske Bank

EUR/CHF has been declining since mid-September, with the cross currently trading at the lowest level since 2015. Economists at Danske Bank think there is room for further decline as relative CPI diverges further.

The risks are FX intervention by the SNB and global yield curve steepening

“We believe there is still room left for further declines as 1) price levels diverge further, 2) SNB will let CHF appreciate on fundamentals, and 3) we see a low risk of a duration shock to the long end of global yields.”

“The key risk is an FX intervention from the SNB in order to avoid EUR/CHF from declining too much. Additionally, the safe-haven currency could face headwinds if global yield curves steepen amid a shift in the global investment environment with global inflation pressures fading and/or renewed surge in global industry.”