EUR/USD: Navigating Uncertainty and Volatility

After a brief rally when the Swiss National Bank (SNB) ‘only’ hiked 25bp in June, EUR/CHF has come steadily lower. Remember this is a heavily managed cross rate, where the SNB uses FX intervention to guide it lower. The purpose of this is to generate nominal exchange rate strength and keep the real CHF stable.
While our preference has been for a lower EUR/CHF for a while, we would not necessarily chase this move because of developments in USD/CHF. The dollar has around a 20% weight in the CHF trade-weighted basket and the big drop in USD/CHF will be doing the heavy-lifting for the CHF TWI appreciation.
We could see EUR/CHF trading here for a while and only return to 1.00 when global inflation converges back to Swiss levels.