The EUR\/CHF exchange rate rose for a second day due to softer Swiss inflation impacting the Franc. In October, the Swiss Consumer Price Index (CPI) experienced a decline of 0.3% on a monthly basis and a slight increase of 0.1% year-on-year, stirring disinflation concerns.<\/p>\n
The Swiss National Bank\u2019s inflation target range is between 0-2%. The latest data may push the SNB to consider cutting interest rates, with market predictions showing a 70% chance of a 25-basis-point cut to -0.25% within a year.<\/p>\n
The SNB’s policy rate stayed at 0.00% in September. However, SNB officials hinted at potential rate adjustments if economic conditions worsen. Switzerland’s SVME Purchasing Managers’ Index rose to 48.2 in October, while the Eurozone’s HCOB Manufacturing PMI returned to 50.<\/p>\n
Inflation measures the price rise in consumer goods and services, with central banks targeting a manageable rate of around 2%. High inflation typically strengthens a currency as it might lead to higher interest rates, attracting global capital. Conversely, low inflation tends to weaken a currency. Inflation impacts gold prices, with higher rates reducing its appeal compared to interest-bearing assets.<\/p>\n
The soft Swiss inflation figures from October 2025 are the main driver for us right now. With year-on-year inflation at just 0.1%, the Swiss National Bank (SNB) is under significant pressure to act against disinflation. This reinforces our view that the path of least resistance for the Swiss Franc is lower.<\/p>\n
We see a clear policy divergence forming between the SNB and the European Central Bank. While SNB board members are openly discussing a return to negative rates, recent ECB commentary has focused on wage growth persistence, suggesting they are in no rush to ease policy. This fundamental mismatch supports a continued rise in the EUR\/CHF exchange rate from its current level around 0.9300.<\/p>\n
For the coming weeks, we are looking at strategies that profit from a rising EUR\/CHF. Buying call options with strike prices around 0.9500 for the first quarter of 2026 offers a way to capture potential upside with a defined risk. The market is now pricing a high probability of an SNB rate cut within a year, which should continue to fuel this upward trend.<\/p>\n
Looking back, we remember the SNB\u2019s dramatic policy shifts, such as the 2015 de-pegging, which show they are not afraid to act decisively. During the last period of negative interest rates in Switzerland, EUR\/CHF spent years trading well above parity. While we are not forecasting a return to 1.10 overnight, history shows that when the SNB starts an easing cycle, the Franc can weaken substantially.<\/p>\n
Given this outlook, we are also considering selling out-of-the-money EUR\/CHF puts to collect premium, as we believe the SNB\u2019s dovish stance will provide a floor for the currency pair. Last week\u2019s Swiss unemployment data, which showed a slight tick up to 2.3%, adds to the domestic economic concerns and supports the case for SNB action. This makes short-term downside in EUR\/CHF seem less likely.<\/p>\n
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