The Swiss franc was under pressure from Switzerland’s central bank for a long time as the bank introduced cap on the currency to prevent excessive appreciation and to maintain competitiveness of country’s exporters. Yet analysts suggest that traders do not necessary need to rush taking short positions on the Swissie.
Things looked very negative for the Swiss currency, especially after it had lost its risk premium due to the situation in Eastern Europe. Surprisingly enough, UBS boosted its forecast for the franc from 1.25 to 1.22 versus the euro. The predicted level is far away from the ceiling of 1.20 per euro set by the Swiss National Bank, therefore the limit should not come into play.
The improving outlook does not mean that traders should turn bullish on the franc. The SNB has demonstrated willingness to keep the cap on the currency as long as it is necessary. And the International Monetary Fund said today that it is indeed necessary to maintain the ceiling:
The exchange rate floor should remain in place for now, as inflation is near zero and the risk of a resumption in safe haven inflows is still material.
USD/CHF rallied from 0.8815 to 0.8865 intraday but retreated and traded at 0.8808 as of 21:35 GMT today. CHF/JPY went up from 115.78 to 116.04. Meanwhile, EUR/CHF rallied from 1.2166 to 1.2186, reaching the high of 1.2200 intraday.
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