EUR/CHF: the euro continues to gain ground

The euro regains height thanks to expectations of an increase in ECB rates

EUR/CHF continues to rally in the short term on expectations of an acceleration in the pace of monetary tightening by the ECB. EUR/CHF is supported by the growing spread between Eurozone and Swiss rates 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 zone, against 9.1% in August and 3.3% in Switzerland.

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

This growing spread in rates can be seen between German and Swiss 2-year yields, currently 150 basis points versus 40 a month ago and 0 at the start of the year. This growing gap between rates is a support factor for the single currency which should increase if the inflation figures continue to surprise on the rise in the euro zone.

EUR/CHF daily price chart – key levels


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