UBS Forecasts EUR/CHF to Hold Above 0.94 Through Year-End

UBS Switzerland AG is maintaining its forecast for the euro-Swiss franc exchange rate to trade around 0.94 through the end of 2026, citing a combination of central bank policy and widening yield differentials. The bank's strategists noted potential for near-term upside before an expected gradual decline in the currency pair in 2027.

SNB Policy and Inflation

The forecast follows the Swiss National Bank's (SNB) recent decision to keep its policy rate unchanged at its September meeting, where it avoided taking an overly hawkish stance. According to UBS strategists Constantin Bolz and Clémence Dumoncel, domestic inflationary pressures in Switzerland remain limited, even as year-over-year inflation rose from 0.4% to 0.8% in August.

Reflecting a shifting outlook, UBS economists have brought forward their expectations for SNB monetary tightening. They now anticipate two rate hikes in March and June 2027, an adjustment from a previous forecast of mid-2027 for the first increase.

Franc's Role as a Funding Currency

Wide interest rate differentials continue to weigh on the Swiss franc, reinforcing its use as a funding currency for carry trades. This dynamic has increasingly overshadowed the franc's traditional role as a safe-haven asset. The franc has weakened by around 5% on a broad basis since the onset of the Middle East conflict, pressured by rising energy prices and expectations of tighter monetary policy in other major economies.

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Analysts noted that the franc's appeal for funding has been enhanced relative to the Japanese yen, which has become less attractive following a Bank of Japan rate hike and the persistent risk of currency intervention. Furthermore, the SNB's perceived willingness to counteract any rapid appreciation of the franc has reduced the risk for investors using it in carry trade strategies.

Market Outlook and Key Levels

Looking ahead, UBS identified next week's Swiss inflation data as a critical release. Evidence that the franc's weakness is feeding more significantly into consumer prices could prompt markets to price in earlier SNB tightening, which would lend support to the currency.

In the near term, the bank suggests the EUR/CHF pair could test resistance near the 0.96 level. Key support is seen around 0.9280.