The euro’s misfortune has turned into a stroke of luck for the Swiss franc. As concerns over French debt intensify, investors are increasingly turning to the currency with the world’s lowest interest rate as a safe haven. Let’s examine this situation and develop a trading plan for the EUR/CHF.
The article covers the following subjects:
Major Takeaways
- Capital outflows from French assets are supporting the Swiss franc.
- Concerns over France’s fiscal outlook are putting downward pressure on the EUR/CHF.
- Changing market expectations for Fed and ECB interest rates are also favoring the Swiss franc.
- Short positions on the EUR/CHF can be opened on upswings with targets of 0.9200 and 0.9000.
Weekly Fundamental Forecast for Franc
Every cloud has a silver lining. Traders had long written off the Swiss franc as a funding currency for carry trades, as the Swiss National Bank kept its key interest rate at zero while central banks elsewhere continued to raise rates. However, as concerns over French debt intensified, the EUR/CHF dropped to a two-month low of around 0.9300. Investors rushed into the franc as a safe haven, treating it like a lifeline.
EUR/CHF Weekly Change
Source: Bloomberg.
The Swiss franc is being supported by capital outflows from French assets. The yield spread between French and German 10-year bonds temporarily widened beyond 150 basis points, its highest level since November 2011, highlighting growing concerns over the eurozone’s fiscal stability. According to ING, amid a sharp increase in sovereign debt risks across the eurozone, the Swiss franc remains the preferred safe-haven currency.
France’s 2027 budget remains a headwind for the euro. The government has proposed reducing the deficit by €43 billion, but the measures have done little to reassure investors. Commerzbank notes that Switzerland’s debt brake—the constitutional rule limiting government borrowing—sets it apart from France. As a result, fiscal risks are likely to remain a key focus for investors through the end of the year.
At its latest meeting, the Swiss National Bank kept its key interest rate at zero, the lowest level among major economies, for the fifth consecutive meeting. SNB Chairman Martin Schlegel refrained from signaling the central bank’s next move, while most Bloomberg economists do not expect monetary tightening before 2028.
SNB’s Inflation Forecast
Source: Bloomberg.
Inflation is another positive factor for the Swiss franc. In September, Swiss consumer prices rose 1% y/y, the highest level since September 2024, while core inflation increased from 0.4% to 0.5%. Although CPI remains within the SNB’s 0%–2% target range, the acceleration in inflation reduces the risk of interest rates returning to negative territory.
Until recently, monetary policy divergence worked against the Swiss franc. The SNB’s zero interest rate made the franc an attractive funding currency for carry trades, while the Fed and ECB kept rates relatively high. A shift in market expectations has weakened this headwind and allowed the franc to gain ground. Expectations of a less hawkish Fed have provided a breath of fresh air for the franc, while the declining likelihood of further ECB tightening is pushing the EUR/CHF toward new lows.
LB Macro expects the Swiss National Bank to raise its key interest rate eventually, though timing will depend on the Fed’s policy decisions and, in particular, the ECB’s.
Weekly Trading Plan for EUR/CHF
The French debt crisis is far from over, suggesting downward pressure on the EUR/CHF is likely to persist. As a result, one can sell the pair with targets of 0.9200 and 0.9000.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURCHF in real time mode
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