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Jan 23 - 06:55 PM

BNPP: CHF to Grind Lower fom Here; Where to Target?

By eFXdata  —  Jan 23 - 04:00 PM

Synopsis:

BNPP expects the Swiss Franc (CHF) to weaken further, with EUR/CHF projected to rise to 0.95 in Q1 2025, driven by a combination of monetary policy dynamics and market fundamentals.

Key Points:

  1. Expensive Valuation and Rate Differentials:

    • CHF remains overvalued, and rate differentials are likely to weigh on the currency.
    • The Swiss National Bank (SNB) is unlikely to tolerate significant CHF strength, especially with negative imported inflation, which could prompt intervention as rates approach the zero lower bound.
  2. Limited SNB Intervention (So Far):

    • Recent months suggest the SNB has not actively intervened in FX markets, but risks of intervention will increase if CHF strengthens further.
  3. Factors Supporting CHF:

    • Switzerland’s wide current account surplus and the CHF's purchasing power parity (PPP) could provide a floor and limit EUR/CHF upside.
  4. Geopolitical and Fiscal Drivers:

    • For EUR/CHF to rise significantly beyond 0.95, BNPP suggests either reduced geopolitical risks or a European fiscal policy response to address the region's growth challenges.

Conclusion:

BNPP anticipates a gradual weakening of CHF but highlights its structural support from Switzerland's external balance. EUR/CHF is forecasted at 0.95 for Q1 2025, with further gains hinging on improved risk sentiment or a more robust European fiscal response

Source:
BNP Paribas Research/Market Commentary

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