Swiss Franc Struggles with Low Yield as EUR/CHF Eyes 0.96 Reversal

UBS is warning that the Swiss franc (CHF) continues to struggle due to its low yield, making it vulnerable to downward pressure. The bank notes that rising energy prices and expectations of further monetary tightening by major central banks have widened yield differentials, pushing EUR/CHF above 0.94.

UBS expects little change in the September Swiss National Bank (SNB) meeting and does not anticipate a rate hike at this time. However, if the SNB remains on hold while other G10 central banks maintain a hawkish stance, UBS predicts that EUR/CHF could retest 0.96, creating an attractive opportunity to lock in higher levels.

The bank believes markets have become overly hawkish on rates and notes that the CHF continues to face pressure due to its low yield relative to other currencies. UBS expects the cross to trend lower over the medium term as the SNB eventually starts tightening and rate differentials narrow.