EUR/CHF exchange rate: what are the forecasts for 2022?

And with good reason: the former, which has been hit harder by inflation but is benefiting from the post-Covid economic recovery, could well rise in value against the latter, which is seen more as a store of value…

Find out what the major banking institutions are predicting regarding the movement of the EUR/CHF exchange rate over the coming months, up until the end of 2022.

Please note: The trends described in this article are, of course, merely forecasts which, although produced by the most reputable institutions, do not engage the liability of b-sharpe.

An uncertain crisis situation

The forecasts by major banks and market experts regarding the movement of the euro-Swiss franc exchange rate – which are closely monitored by Swiss and cross-border businesses – have proved particularly difficult to make in recent months. 

Whilst the global health crisis has severely disrupted the economy over the past two years, due to the numerous restrictions imposed by various European governments (ranging from the closure of certain businesses to the strictest lockdowns), the lifting of most of these restrictions at the start of the year has led to logistical bottlenecks, an inevitable consequence of a sharp rebound in demand coupled with production still hampered by health regulations and staff shortages.

Whilst economic activity and growth did indeed pick up again at the end of winter, these supply chain issues, coupled with central bank support measures, have led to widespread inflation. A generalised rise in prices inevitably impacted the foreign exchange market, but many experts at the time viewed this as merely a market blip following two years of crisis and unprecedented support from banking institutions.

However, the recent crisis stemming from the conflict between Russia and Ukraine, which has been ongoing since 24 February, has once again thrown these forecasts into disarray. With galloping inflation, particularly in fuel and food commodity prices, and an uncertain economic outlook for the two nations involved in this war, it is difficult to predict what the exchange rate between the Swiss Confederation’s two leading currencies will be by the end of 2022…

Credit Suisse’s forecasts

In early 2022, a wide-ranging study conducted by Credit Suisse among 1,100 Swiss companies provides a good indication of the outlook for the EUR/CHF exchange rate in the coming months. The study states that, of all the companies surveyed, 80% purchase some of their inputs in the single currency, whilst nearly 70% sell their products or services in Swiss francs. 

On this occasion, the economic stakeholders surveyed, as well as Credit Suisse’s foreign exchange strategists, all predict an end to the downward trend in the EUR/CHF exchange rate that has been in place since 2017. They therefore anticipate a slight appreciation of the euro against the Swiss franc: businesses are forecasting an exchange rate of 1.08 by the end of 2022 (compared with 1.05 by the end of 2021), whilst Credit Suisse takes this trend even further, forecasting a rate of 1.10.

Why is the euro expected to appreciate against the Swiss franc over the coming months? With inflation more pronounced in the eurozone than in Switzerland, it seems likely that the European Central Bank (ECB) will have to raise interest rates sooner than the Swiss National Bank (SNB). 

At the same time, the use of the Swiss franc as a store of value – which contributed to its appreciation during the toughest months of the Covid crisis – is likely to decline, logically leading to a slight depreciation of the Swiss currency. Finally, as has been demonstrated in the past, periods of economic recovery tend to favour the euro.

Update: Against all expectations, the SNB finally decided to raise its interest rates on 16 June (the first such move since September 2007), bringing them up from -0.75% to -0.25%, in order to prevent inflation from spreading.

At the same time, the use of the Swiss franc as a store of value – which contributed to its appreciation during the toughest months of the Covid crisis – is likely to decline, logically leading to a slight depreciation of the Swiss currency. Finally, as has been demonstrated in the past, periods of economic recovery tend to favour the euro.

The war in Ukraine and inflation are at the heart of market expectations

The blind spot in these forecasts is, of course, the crisis in Ukraine. Whilst Credit Suisse had already announced at the start of the year that inflation would be one of the three key factors likely to influence the exchange rate between the euro and the Swiss franc, the bank could not have anticipated an even sharper rise in prices caused by an armed conflict in Europe! 

Whilst the Swiss economy is clearly better protected against this phenomenon than the eurozone, it nevertheless called into question the SNB’s forecasts last March: the SNB had anticipated an inflation rate of +2.1% for 2022, followed by just +0.9% in 2023, whereas it had already reached +2.5% in April. There is no doubt that this is a figure to be monitored closely in order to forecast the trend of the EUR/CHF pair.

At the same time, the European Commission announced last May that it had revised its growth forecast downwards (reducing it by 1.3 percentage points to 2.7% for 2022) and its inflation forecast upwards (by 3.5 percentage points to 6.8% for the year) for the eurozone as a whole. 

These trends are entirely attributable to the war in Ukraine and cast a somewhat different light on the forecasts made in the survey conducted by Credit Suisse earlier this year. Indeed, slower economic growth in Europe and soaring inflation, particularly in energy prices, could limit the euro’s appreciation against the Swiss franc.

The health crisis, supply chain issues, inflation and now the Russia-Ukraine conflict… There is no doubt that the last two years have been turbulent on the markets! Whilst the major banks are forecasting a slight appreciation of the euro against the Swiss franc over the coming months, it is difficult to say for certain in such a context.

In any case, all banking institutions encourage businesses to hedge against currency risk in the face of market volatility. To do so, please do not hesitate to contact b-sharpe for their specialist services!