Despite high inflation, aggressive ECB rate hikes remain low allowing for the currency to keep falling vs the USD. The scenario looks like the one seen from the FOMC last year, where rates were low even as inflation flared up.
EUR/CHF is trading below parity and while that’s not the first time it’s ever happened, it does seem as though it’s the first time that it hasn’t recovered shortly after piercing through parity.
The Swiss National Bank had put in quite a bit of work to defend the peg at 1.2000 from 2011-2015. At the time, falling European credits were driving investors out of the Euro and into the Franc. That became such an outsized theme that the Swiss National Bank feared that high levels of currency strength would bring on deflationary concern or, perhaps even choke off growth, and the bank looked to establish and defend a floor on the currency.
But, floors don’t really work, especially when it’s a smaller economy trying to hold up a larger one and that peg breaking in 2015 had devastating consequences. Shortly after, another range developed in the pair as the SNB remained somewhat active. The prior peg at 1.2000 came in as resistance in 2018; and since then prices have continued to fall with only a brief pause around the 1.0500 psychological level.
More recently, however, EUR/CHF has fallen below the parity figure and sellers have continued to drive. Again, similar to EUR/USD themes, the driver is rate divergence, with the Swiss National Bank hiking rates while the ECB continues to sit on their hands.
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