What Will Become of EUR/CHF After ECB Rate Cut?

When Swiss National Bank (SNB) first introduced its determination to hold the EUR/CHF minimum rate at 1.2, only few of this blog’s readers believed that it will hold at least until 2013. A year later, a poll showed that EUR/CHF is likely to stay well above 1.2 in 2012, which it did. Now, it is time for a major update on the issue.
EUR/CHF would not be a currency pair too interesting to go long with the 1.2 peg if not for the considerable interest rate difference, which resulted in nice carry trade profit. When SNB announced its minimum exchange rate policy, the eurozone interest rate (set by European Central Bank) stood at 1.5% compared to 0–0.25% range in Switzerland. Following May 2, 2013, ECB monetary policy decision, it is now 0.5% vs. 0–0.25%, which becomes really insignificant in terms of investor attraction.

Currently, some retail brokers still pay long EUR/CHF interest to traders (for example, EXNESS does). But that might change on May 8 when the new ECB main refinancing operations rate becomes effective. We are yet to see whether it will be a problem for SNB to keep the Swiss franc from appreciating above their goal rate. Nevertheless, SNB has its own reasons to continue with the franc capping. Swiss consumer price index, even its core component, continues to fluctuate below zero, which means deflation. At the same time, the GDP growth has improved somewhat compared with its pre-peg levels but is still below 2% rate, which is considered a normal minimum value for developed economies.
Personally I believe that the current 1.2 minimum rate will be kept intact at least until the end of year, yet the chance for a notable rally in EUR/CHF is minuscule. And how about you?

Where will EUR/CHF end its trading in 2013?

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If you have any questions or comments about the future of EUR/CHF peg and possible FX trading strategies around it, please feel free to submit them below.