EUR/CHF: The euro continues to gain ground

The euro is gaining ground again thanks to expectations of an increase in ECB interest rates

EUR/CHF continues to rise in the near term on expectations of an acceleration in the pace of ECB monetary policy tightening. EUR/CHF is supported by the widening spread between Eurozone and Swiss yields as the ECB is expected to go much further in monetary tightening than the SNB due to much higher inflation. The consumer price index reached a record high of 9.9% in September in the euro area, compared to 9.1% in August and 3.3% in Switzerland.

Traders now expect a further rate hike of 75 basis points from the ECB next week, whereas a few days ago they expected a rate hike of 50 basis points. The SNB can also raise interest rates by 75 basis points, but its next meeting will be in December. By then, the ECB will have raised interest rates by at least 125 basis points from today (75 in October and 50-75 in December).

This widening spread can be seen between German and Swiss 2-year rates, currently 150 basis points against 40 a month ago and 0 at the beginning of the year. This widening gap between the rates is a supportive factor for the single currency, which should rise if inflation numbers continue to surprise on the rise in the euro area.

EUR/CHF Daily Price Chart – Key Levels

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