Synopsis:

Danske Bank anticipates a bearish trajectory for EUR/CHF, driven by narrowing rate differentials and Switzerland's strong fundamentals, forecasting the pair to decline to 0.91 in the coming months.

Key Points:

• Swiss Inflation Print:
  • November inflation data met expectations, with headline inflation at 0.7% y/y and core inflation at 0.9% y/y.
  • Inflation remains on track to undershoot the SNB’s Q4 forecast of 1.0%.
• Monetary Policy Outlook:
  • Markets marginally favor a 50bp SNB rate cut for December (39bp priced).
  • Real effective CHF developments will heavily influence SNB decisions, as imported inflation remains a key focus.
• EUR/CHF Drivers:
  • Rate differentials are expected to narrow over the coming year, creating a sustainable headwind for EUR/CHF.
  • Strong Swiss fundamentals continue to support CHF strength against the EUR.

Conclusion:

Danske maintains a bearish stance on EUR/CHF, forecasting the pair to decline to 0.91 in the months ahead, as narrowing rate differentials and robust Swiss fundamentals exert downward pressure.