FXStreet reports that economists at Rabobank note that the Swiss National Bank (SNB) has the mandate to maintain CPI inflation near 2% on a yearly basis but is currently running at just 0.2%. CHF's strength is not welcomed by SNB, economists said.
"The strong performance of the CHF can be associated with Switzerland's robust fundamentals which ensure that the currency is considered by many investors to be store of value. While there have been a wide number of exogenous factors which have sparked flows into safe-haven currencies such as the CHF or the JPY over the years, the CHF is particularly sensitive to bad news stemming from the Eurozone."
"Even if coronavirus fears lessen, the recent worsening in Eurozone economic data threatens to keep the CHF stronger for longer. The SNB is mandated to ensure price stability which equates with a rise in CPI inflation of less than 2% y/y. Swiss headline CPI inflation is currently running at just 0.2% y/y and has not been above the 2.0% level since a temporary spike in 2008."
"In view of the SNB's long-standing difficulties in supporting inflation, sporadic inflows associated with safe-haven demand for the CHF are very unwelcome. Even so, it is our expectation that Eurozone growth will be sluggish this year implying that EUR/CHF is likely to continue to trade heavily. In addition, any surge in coronavirus fears are also likely to benefit the CHF given its safe-haven status."
"Having breached the 2017 low around 1.0624, technical indicators suggest that EUR/CHF could be headed towards 1.05. That said, momentum currently appears to be stretched which suggests there is scope for a period of consolidation around current levels. For now, we maintain our 3-month EUR/CHF forecast of 1.06."
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