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Goldman Sachs “Reverse Currency Wars” thesis, forecast EUR/CHF as low as 0.95

Last update June 23, 2022

Eamonn Sheridan June 23, 2022 SNB & CHF

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Summary:
Goldman Sachs discusses CHF outlook and maintains a bullish bias over the medium-term. ‘The SNB surprised markets with a 50bp hike last week and a change to its intervention framework. The move confirms our bullish view on the Franc and is the strongest evidence yet of our “Reverse Currency Wars” thesis-the era of targeting weaker exchange rates is over (and accelerating through the year) is probably too high relative to the SNB’s inflation aim. The Bank’s research and our own have found that a 1%appreciation in the currency can lower inflation by about 0.1-0.2%. Taken together, we think the Bank is likely to target about a 5% appreciation in the real exchange rate, which would put it around the post-2015 average,” G “With this in mind, we are rolling forward

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Goldman Sachs discusses CHF outlook and maintains a bullish bias over the medium-term.

‘The SNB surprised markets with a 50bp hike last week and a change to its intervention framework.
The move confirms our bullish view on the Franc and is the strongest evidence yet of our “Reverse Currency Wars” thesis-the era of targeting weaker exchange rates is over (and accelerating through the year) is probably too high relative to the SNB’s inflation aim.
The Bank’s research and our own have found that a 1%appreciation in the currency can lower inflation by about 0.1-0.2%. Taken together, we think the Bank is likely to target about a 5% appreciation in the real exchange rate, which would put it around the post-2015 average,” G
“With this in mind, we are rolling forward our EUR/CHF forecasts to 1.00, 0.98 and 0.97 in 3, 6 and 12 months (from 1.01, 1.00 and 0.99 previously) and our end-2023 forecast to 0.95 (from 0.97), which we think is roughly in line with the SNB’s implied currency aim,”