Morgan Stanley: EUR/CHF Stable as Clashing Forces Keep Cross in Check

Morgan Stanley has projected that the EUR/CHF currency pair will trade within a narrow range of 0.93 to 0.95 in the near term, citing competing forces that balance downward and upward pressures on the cross. The investment bank attributes this forecast to EUR-CHF rate compression, which acts as a drag, and the Swiss franc's status as a low-yield funding currency, which provides upward support. The analysis suggests that while the Swiss franc is expected to weaken against the U.S. dollar in the first half of 2026, the decline will be less pronounced than that of the Japanese yen, making the Swiss franc a relatively more attractive funding option.

The forecast comes amid broader economic uncertainties, including a recent cyberattack on third-party vendor SitusAMC, which compromised mortgage data linked to major banks like JPMorgan, Citi, and Morgan Stanley. The breach, which affected millions of records, has heightened concerns about the financial system's vulnerability to third-party risks and prompted an FBI-led investigation. Despite these challenges, Morgan Stanley's outlook for the EUR/CHF pair remains stable, reflecting its confidence in the cross's resilience amid conflicting macroeconomic dynamics.

The Swiss National Bank (SNB) has maintained a cautious stance, with officials signaling that the bar for returning to negative interest rates remains "high" but emphasizing readiness to cut rates if necessary. This guarded approach aligns with recent Eurozone economic data, including a softer-than-expected preliminary Purchasing Managers Index (PMI) for November, which indicated fading growth momentum in the region. The Eurozone Composite PMI fell to 52.4, with Germany's manufacturing sector contracting further into negative territory at 48.4. Such data has limited upward pressure on the euro, allowing the EUR/CHF cross to stabilize around 0.9290 in recent sessions.

European Central Bank (ECB) officials have reinforced a neutral policy outlook, with President Christine Lagarde reiterating that the central bank will adjust rates as needed to maintain inflation on track toward the 2% target. Meanwhile, the SNB's decision to keep rates unchanged at 0% in December underscores its prioritization of price stability over aggressive intervention. Analysts suggest that this dovish stance, combined with the ECB's cautious approach, will keep the EUR/CHF cross in a tight range as market participants await further clarity on monetary policy divergences between the two central banks.

The EUR/CHF forecast also reflects broader trends in global currency markets. The Swiss franc's role as a funding currency is bolstered by its low-yield environment, which attracts investors seeking to leverage its liquidity while mitigating carry costs. Conversely, the euro faces headwinds from weak Eurozone growth and the ECB's reluctance to adopt a more hawkish stance. This dynamic positions the EUR/CHF cross as a key barometer for assessing the interplay between European and Swiss monetary policy, as well as macroeconomic performance in the region. Morgan Stanley's projection highlights the importance of navigating competing forces in a volatile market environment, where third-party risks and central bank policies continue to shape currency dynamics.