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EUR/CHF set to benefit as SNB tolerates a weaker franc
Commerzbank estimates franc depreciation would lift Swiss inflation by 0.18 percentage points over 12 months, while SNB rates are expected to stay unchanged.
Commerzbank analysts say the Swiss National Bank’s recent shift toward tolerating a weaker Swiss franc is likely to feed into inflation only moderately, which they expect to support EUR/CHF over the medium term.
Using a structural exchange-rate pass-through model based on invoicing currencies, the bank finds euro-denominated trade drives the short-term exchange rate effects more than US dollar invoicing, with the euro channel estimated at about 3.8 times the US dollar channel after one month.
Commerzbank estimates the inflationary impact of franc depreciation at 0.18 percentage points after 12 months, noting that while the effect would be less severe than what is sometimes assumed in energy shock scenarios, comparing today with 2022 implies the difference versus prior periods has widened.
The analysts also project that the interest rate differential between the euro area and Switzerland is likely to persist, with SNB expected to keep rates unchanged, and they point to options as a way to express the expected EUR/CHF move while avoiding financing costs tied to the spot interest-rate differential.