📝Expect ECB-SNB Rate Spread to Narrow to 150Bp: Danske Bank

In line with our expectation, the SNB cut the policy rate by 25bp to 0.25% in March. While the bar for additional cuts is high given that the policy rate is nearing 0% coupled with increased global uncertainty, we expect a final cut to the policy rate to 0% in June. By extension we expect the interest rate spread vis-à-vis the ECB to narrow to 150bp. With the outlook of rate differentials narrowing over the coming year, we think this will be a more sustainable headwind for EUR/CHF in 2025. Combined with strong fundamentals, we think persistently diverging price levels favour a fundamentally stronger CHF via the PPP. Additionally, we note that a global investment environment characterised by still weak global growth is usually also beneficial for the Swiss Franc.

We forecast a move lower in EUR/CHF over the coming year,targeting the cross at 0.94 in 3M and 0.92 in 12M. The biggest risk to this call is aggressive FX intervention from the SNB and sustained EUR optimism. - Danske Bank