Fundamental Forecast for Swiss Franc

Two more warning shots from the SNB failed to drive the EUR/CHF higher but have kept the pair trading above 1.4650. The central bank is suspected to have intervened in the currency market in order to depreciate the local currency against that of its main trading partner as they look to drive demand for exports. Policy makers also fear that a strong franc will continue to import deflationary forces, as was seen in December when consumer prices fell 0.1% on the month. On an annualized basis inflation actually rose by 1.0% which surpassed estimates of 0.8% as transportation and energy cost continue to rise. However, a 0.7% drop in core prices in December will only strengthen the SNB’s conviction to keep their pledge to limit Franc appreciation. The Franc also ended the week even against the greenback despite considerable volatility driven by broader risk trends.

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