After two consecutive months of decline, EUR/CHF staged a recovery toward the end of August that saw the franc close weaker for the month. Nonetheless, economists at MUFG Bank believe that the rebound will not last and expect lower levels for the EUR/CHF pair.

EUR’s rebound unlikely to last

“With recession risks still high, we doubt the EUR rebound will prove lasting. Even if natural gas prices move lower, the lift to confidence will be marginal given the high level of uncertainty over supplies from Russia in 2023 and beyond.” 

“The rhetoric from the SNB also indicates a central bank growing increasingly concerned over the threat of inflation and hence there are risks the SNB could match the ECB’s actions if the ECB does turn more hawkish through the remainder of the year. But what seems as likely is the ECB failing to deliver what is priced into the market as recession in the eurozone bites.” 

“Toward the end of August SNB President Jordan stated that the signs were increasing that structural changes globally could lead to ‘persistently higher inflationary pressures in the coming years’. If the SNB believes a structural change is underway, then the attitude to CHF appreciation will change and the entire framework of the monetary policy strategy in Switzerland could also change. This to us points to lower EUR/CHF levels until the energy crisis in Europe abates.”

This article was originally published by Fxstreet.com.Read the original article here.

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