EUR/CHF forecast: Can the pair rise to parity?

By Capital.com Research Team17:05 (UTC), 13 December 2022 Updated

One Swiss Franc coin and One euro coin on fluctuating graph. — The euro is the official currency of the European Union, the Swiss franc is the currency of Switzerland and Liechtenstein. Photo: Valeri Potapova / Shutterstock

2022 has been a year of two halves for the euro to Swiss franc (EUR/CHF) exchange rate. The euro held above parity against the franc for most of the first half of the year. However, the EUR/CHF fell steeply from mid-June until late September, dropping to 0.9410, a level last seen when the franc was unpegged against the euro in 2015.

From here, the euro has attempted to stage a recovery, rising over 3% since late October, but it continues to trade below parity. Can the euro rise against the Swiss franc in 2023?

Here we look at the recent developments in the euro Swiss franc and analysts’ latest EUR/CHF predictions.

EUR/CHF live chart

What is EUR/CHF?

The euro (EUR) is the official currency of the European Union, adopted by 19 countries out of the 27 within the bloc. It is the world’s second most widely held and traded currency after the US dollar (USD).

The Swiss franc (CHF) is the official currency of Switzerland and Liechtenstein.

EUR/CHF measures how many Swiss francs make up 1 euro. For example, if EUR/CHF is 1.0100, this means that 1.01 Swiss francs are equal to 1 euro.

What tends to influence EUR/CHF?

The euro is affected by the economic picture of the 19 countries within the euro area, including gross domestic product (GDP), inflation and employment. These factors influence the European Central Bank’s (ECB) monetary policy. Domestic politics, international policies and developments in the Russian-Ukraine war can also affect the euro's value.

The Swiss franc is influenced significantly by the central bank, which traditionally worked to keep its exchange rate low, as the franc’s value affects the country’s competitiveness in its export market. The Swiss franc is also a known safe haven, which typically performs well in times of heightened global geopolitical tensions and economic uncertainty.

How has EUR/CHF performed?

EUR/CHF 5-YEAR PRICE CHART

In 2015, the Swiss National Bank unpegged the Swiss franc from the euro, sending the pair from the 1.20 peg to a low of 0.8620 before it recovered to trade around 1.10.

The pair remained around that level until July last year when the EUR/CHF started to trend lower.

EUR/CHF started this year at 1.0380, pushing higher in the first quarter to a 2022 peak of 1.0610.

From here, the price declined to 0.9972. It recovered, trading in a range across the rest of the year’s first six months, capped on the upside by 1.0520 and around 1.02 on the downside.

The EUR/CHF fell sharply in the third quarter, hitting a low of 0.94 on 26 September. Since then, the euro has been recovering steadily and at the time of writing (13 December) trades around 0.9850.

EUR/CHF’s recent price action

European Central Bank

Euro area annual inflation and its main components (%) The euro has been pushing higher in recent weeks after the eurozone economy narrowly avoided negative GDP growth in the third quarter and as inflation shows signs of peaking. The eurozone economy grew at 0.3% quarter-over-quarter (QOQ) in Q3, down from 0.8%, with household spending and fixed capital investment lifting growth.

But, the outlook is gloomy. The European Commission predicts that the eurozone economy could contract in the current quarter and tip into recession in the first quarter of 2023 before recovering in the April to June quarter of next year.

Inflation is showing signs of cooling after hitting a record high of 10.6% year-over-year (YOY) in October before easing to 10% YoY in November. Wholesale inflation, as measured by the producer price index (PPI), has also been cooling in recent months, dropping to 30.8% YoY in November, down from 41.9% in October.

The ECB is expected to raise interest rates by 50 basis points (bps) in the December meeting, following two straight 75 bps hikes. Despite inflation cooling, it is still double the ECB’s 2% target. Policymakers could indicate that there are more rate hikes to come.

Swiss National Bank

The SNB raised its key policy rate by 75 bps in September, taking it out of negative territory for the first time in eight years as the central bank fought inflation of 3.5%, a 30-year high.

SNB chair Thomas Jordan recently said that there was a high probability that more monetary policy tightening was needed given that inflation was expected to remain elevated, potentially not dropping below 2% until 2024.

The SNB is expected to hike interest rates by a smaller 50 bps this week. However, the widening interest rate differential with the ECB is putting pressure on the Swiss franc. As a result, the possibility of a 75 bps rate hike can't be ruled out.

The ECB has already raised interest rates by 200 bps in this hiking cycle, compared to 125 bps by the SNB.

The SNB has departed from its historical stance of focusing on reining in the safe haven franc to support the export-reliant economy. It recently intervened in the market to support the franc. Could we see more of this in the future?

Economic growth in Switzerland was 0.5% in the third quarter. However, growth is expected to weaken significantly in the coming year, with GDP of 0.6% forecast for 2023 -– less than half the 2% growth expected in 2022.

EUR/CHF forecasts

According to analysts at Trading Economics, the euro is expected to weaken against the Swiss Franc across the coming year. The EUR/CHF forecast for 2023 is 0.97908. The Swiss franc forecast was 0.98276 by the end of the quarter.

As of 13 December, the EUR/CHF forecast according to algorithm-based forecaster Wallet Investor was for the pair to weaken over 2023, ending the year at 0.948 – below the level it was trading at the time of writing. In the longer term, its EUR/CHF forecast for 2025 saw the rate falling to 0.883 by the end of that year.

Meanwhile, AI Pick up sees the EUR/CHF rising to 1.16 by 2025 before the euro continues strengthening further. The services’ EUR/CHF forecast for 2030 is 1.2.

Analysts view

Analysts at ING, in their EUR/CHF forecast, predicted EUR/CHF will fall to 0.93 in the first quarter of 2023, falling to 0.90 by the third quarter and recovering to 0.92 by the end of 2023:

“Central banks are communicating that they need to tighten rates into recession and remove the excess liquidity poured out during a series of monetary bailouts. Tighter monetary and financial conditions typically spell stormy waters for risk assets. With its still sizable current account surplus (worth 8% of GDP in the second quarter of 2022) the Swiss franc should perform well during this stage of the global economic cycle.”

Meanwhile, analysts at Danske Bank in their EUR/CHF forecast expected the pair to hold steady in the near term and fall to 0.94 in the coming months:

“We expect the SNB to hike by 50 bps in December bringing the policy rate to 1.00%. In the near-term, we expect relative rates to prove a headwind for CHF, why we expect the cross to remain elevated at 0.98 in 1M.” They add “Further out, we continue to forecast the cross to move lower on the back of fundamentals and a tighter global investment environment. We forecast the cross at 0.94 in 12M.

“The key upside risks to our forecast are global yield curves steepening amid a shift in the global investment environment and/or the SNB falling further behind the curve.”

Please note that analysts’ predictions can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence, looking at the latest stock news, a wide range of analyst commentary, technical and fundamental analysis.

Remember, past performance does not guarantee future returns. And never trade with money you cannot afford to lose.

FAQs

Why has EUR/CHF been rising?

EUR/CHF has risen since the October low as the central bank differential between the European Central Bank (ECB) and the Swiss National Bank (SNB) has widened to historical levels.

Will EUR/CHF go up or down?

It is impossible to say whether EUR/CHF will go up or down. Analysts and prediction services aren’t in agreement over where the pair could go over the coming years. It is always best to do your own research to form your own views.

When is the best time to trade EUR/CHF?

The best time to trade EUR/CHF is when the pair is more volatile. This tends to be between 08:30 to 15:30 GMT

Is EUR/CHF a buy, hold or sell?

Whether EUR/CHF is a buy, hold or sell is up to you. Always do your own research taking into account ECB and SNB central bank action, inflation, economic growth, as well as the broader geopolitical and global economic environment. Remember, past performance does not guarantee future returns. And never trade with money you cannot afford to lose.