EUR/CHF eases as Swiss inflation remains muted and Eurozone GDP meets forecasts
- EUR/CHF trades close to record lows after soft Swiss CPI data.
- Eurozone Q4 GDP meets expectations but fails to lift the Euro.
- Monetary policy outlooks remain steady, with both the SNB and the ECB expected to stay on hold.
EUR/CHF extends its decline on Friday, as Swiss inflation data supports the Swiss Franc (CHF). At the time of writing, the pair is trading around 0.9120, hovering near the all-time low of 0.9095. Meanwhile, in-line preliminary Eurozone Gross Domestic Product (GDP) figures offered only limited support to the Euro (EUR).
Eurozone data showed that the economy grew by 0.3% in the fourth quarter, in line with expectations and unchanged from the earlier estimate. On a yearly basis, growth came in at 1.4%, slightly above the 1.3% forecast.
The labour market also showed steady momentum, with Employment Change holding at 0.2% QoQ in the fourth quarter, above the 0.1% forecast, while annual employment growth held at 0.6%, in line with expectations.
In Switzerland, data published by the Federal Statistical Office showed that the Consumer Price Index (CPI) fell 0.1% MoM in January, missing expectations for 0.0% and easing from a flat reading in December. On a yearly basis, CPI held steady at 0.1%, in line with both the market forecast and the previous month.
Inflation remains at the lower end of the Swiss National Bank's (SNB) target range, reinforcing expectations that the central bank will keep interest rates unchanged at its March meeting and through 2026.
Meanwhile, the ECB is also widely expected to keep policy on hold for an extended period. A Reuters poll conducted between February 9-12 showed that 66 out of 74 economists expect the central bank to hold its deposit rate at 2.00% through 2026, and no change is expected before 2027.
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
The Swiss National Bank (SNB) meets four times a year – once every quarter, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.
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