The potential interest rate cut announced by the European Central Bank (ECB) on 6 June seems to have been largely anticipated by the markets. Despite this, uncertainty remains regarding the timing of future rate cuts and the forecast for Eurozone core inflation levels. This ambiguity may result in a further widening of the spread between 2-year sovereign bond yields in the Eurozone and Switzerland.
The EUR/CHF pair experienced a minor corrective slide following the last analysis, nearly reaching the key support level of 0.9540/9470. However, a bullish reversal occurred, leading to a 3.8% rally in the following weeks, culminating in a 52-week high of 0.9930. This surge came after the Swiss National Bank’s surprise rate cut in March, which caused the Swiss franc to underperform against other G-10 currencies.
CHF Performance Against G-10 Currencies
The Swiss franc has witnessed a 3.9% decline against the Euro in the past three months, positioning it as the third weakest CHF cross pair. This slump is consistent with a broader trend of the CHF’s depreciation against major currencies, including the Euro and the British pound.
Despite the anticipated interest rate cut by the ECB in June, concerns linger regarding the future trajectory of inflation and economic growth in the Eurozone. ECB officials have provided mixed signals, with some expressing the need to maintain restrictive policies through 2024. Private sector economists also forecast a steady pace of Eurozone core inflation for May, suggesting that the previous deceleration trend may be stabilizing.
Impact on EUR/CHF Exchange Rate
The widening spread between Eurozone and Switzerland sovereign bond yields has bolstered the medium-term uptrend of the EUR/CHF pair. If the key support level of 0.9830 holds, the pair may experience further bullish momentum towards the next resistance zone of 1.0040/1.1000. However, a break below 0.9830 could shift the outlook to a more bearish tone, potentially leading to a test of the 200-day moving average at 0.9575.
The upcoming ECB interest rate cut and evolving inflation trends in the Eurozone are likely to have a significant impact on the EUR/CHF exchange rate. Market participants should closely monitor key levels and economic developments to gauge the future direction of the pair.