Morgan Stanley Sees Potential for Swiss Franc to Strengthen

The bank recommends selling the euro against the franc and buying the franc against the yen.

EUR/CHF    chart in 1-day intervals

Strategists at Morgan Stanley remain bullish on the Swiss franc, recommending short positions on the EUR/CHF pair, while at the same time assuming an increase in the CHF/JPY pair due to further rate hikes by the Swiss National Bank (SNB).

“We maintain our bullish sentiment on the Swiss franc. The SNB has made it clear that it favors a stronger over a weaker currency to counter imported inflation. The function of the central bank’s response to the Swiss franc is also no longer one-sided, with the sale of foreign currency to the SNB (buying the Swiss franc) now also possible in the event of a weakening of the Swiss franc.

Analysts say the CBR would prefer to use rate hikes for now, but a possible purchase of the Swiss franc cannot be ruled out if the currency doesn’t strengthen.

The recent drop in business PMIs and reduced gas supplies suggest that growth prospects in Europe may also worsen, keeping EURCHF down. The CHFJPY pair should also continue to rise, helped by monetary policy divergence.