Swiss Franc: Strong growth may curb losses against Euro – Rabobank

Rabobank's Senior FX Strategist Jane Foley highlights Switzerland’s stronger-than-expected Q2 Gross Domestic Product (GDP) and resilient economy, yet notes EUR/CHF remains in a gentle uptrend since late May. Foley has revised its 9–12 month EUR/CHF target to 0.95 from 0.94, arguing strong Swiss growth, benign inflation and zero interest rates could limit upside and increase sideways trading.

SNB policy and safe haven dynamics

"Nevertheless today’s data release casts the Swiss economy in a new light and speaks of the resilience of its economy. That said, the data has not been sufficient to knock EUR/CHF away from the gentle uptrend that has been in place since late May."

"While we have been expecting EUR/CHF to edge moderately higher, the move has outpaced our expectations. Consequently we are edging up our forecasts. That said strong Swiss growth could limit upside potential and increase scope for bouts of sideways trading."

"The SNB must be satisfied with the softening in the value of the CHF in recent months. For years, the Swiss central bank has struggled with the impact of safe haven flows into the CHF."

"Just days after the Iran war broke out, the SNB warned that it stood ready to intervene and data suggests that action was taken in Q2, most likely in March. The combination of intervention threats and zero policy rates have certainly appeared to dilute the appeal of the CHF as a safe haven currency in recent months."

"The uptrend in EUR/CHF was given another shot in the arm by the ECB’s June rate hike and the expectations that it could tighten policy further potentially next month. By contrast, the market sees little danger of a SNB rate hike in the next 12 months."

"That said, following years of downside pressure, EUR/CHF has not recovered far from record lows, meaning the SNB is unlikely to drop its intervention threat just yet. We have revised up our 9 to 12-month target to EUR/CHF 0.95 from 0.94."