Navigating Currency Crosses: Strategic Opportunities in EUR/GBP and EUR/CHF for 2026

The global economic landscape in 2026 is poised for a delicate balancing act, where political uncertainty, fiscal experimentation, and evolving carry trade dynamics will shape currency markets. UBS's updated forecasts for the EUR/GBP and EUR/CHF pairs offer a compelling framework for investors seeking to capitalize on these forces. By dissecting the interplay of policy shifts, inflationary pressures, and risk appetite, we can identify actionable strategies to navigate—and profit from—this complex environment.

EUR/CHF: A Eurozone Recovery and the Swiss Franc's Fragile Defense

UBS's projection of EUR/CHF reaching 0.95 by early 2026 hinges on two critical pillars: the Eurozone's fiscal expansion and the Swiss National Bank's (SNB) constrained policy flexibility. The German-led fiscal stimulus package, announced in late 2025, has injected momentum into the region's economic recovery, outpacing Switzerland's cautious approach. This divergence creates a natural tailwind for the euro, as stronger Eurozone growth metrics (e.g., industrial output and consumer confidence) widen the yield differential.

However, the SNB's anticipated 25-basis-point rate cut in March 2026 introduces a counterweight. While the central bank aims to stabilize inflation, the Swiss franc's recent weakening—driven by reduced demand for safe-haven assets—suggests that further easing may be limited. Investors should monitor the SNB's balance sheet adjustments and the euro's resilience against external shocks, such as U.S. tariff hikes on Swiss exports.

EUR/GBP: Fiscal Optimism vs. Tariff Risks

The EUR/GBP pair, currently hovering near 0.84, appears stable on the surface but masks underlying fragility. UBS's analysis underscores the German fiscal package as a key driver of euro strength, yet it also highlights a critical blind spot: the market's underpricing of U.S. tariff risks. With the Trump administration's proposed tariffs on European goods settling near 15% by mid-2026, the euro's vulnerability to trade-driven volatility could outpace the pound's.

The British pound, however, retains a carry trade advantage. The Bank of England's (BoE) decision to maintain rates—despite the UK's July inflation surprise—has preserved the pound's yield premium relative to the euro. This dynamic positions GBP/CHF as a strategic cross, with UBS targeting 1.07 by September 2026. The Swiss franc's muted response to U.S. tariffs further amplifies the pound's appeal, as investors seek higher returns in a low-yield world.

Geopolitical and Fiscal Crosscurrents

The broader geopolitical context cannot be ignored. The Ukraine conflict's lingering impact on energy markets and the U.S. dollar's role as a global reserve currency will continue to influence cross-currency flows. Meanwhile, the Trump administration's protectionist agenda—manifesting in tariffs on Swiss and European goods—introduces a layer of policy-driven volatility.

Investors must also consider the interplay between fiscal and monetary policy. The Eurozone's aggressive fiscal expansion risks reigniting inflation, potentially forcing the ECB into a tightening cycle. Conversely, the UK's inflationary spike in July 2025 has already priced in much of the BoE's tightening, creating a yield differential that favors the pound.

Strategic Recommendations for 2026

1. Position for EUR/CHF's Asymmetric Upside: Given the Eurozone's fiscal momentum and the SNB's limited easing capacity, a long EUR/CHF position with a target of 0.95 offers a favorable risk-reward profile. Use options or futures to hedge against sudden U.S. tariff announcements.
2. Short EUR/GBP for Tariff-Driven Volatility: The euro's exposure to U.S. tariffs makes it a weaker bet against the pound. A short EUR/GBP position, coupled with a long GBP/CHF cross, could capitalize on the pound's carry advantage while mitigating Swiss franc risk.
3. Diversify with Carry Trade Enhancements: Allocate a portion of portfolios to GBP/CHF, leveraging the pound's yield premium. Monitor the BoE's inflation data and the SNB's balance sheet for early signals of policy divergence.
4. Hedge Against Policy Shocks: Given the likelihood of cross-asset volatility, consider alternative assets (e.g., hedge funds, commodities) to offset currency-specific risks.

Conclusion

The EUR/GBP and EUR/CHF pairs in 2026 represent a microcosm of the broader tension between fiscal ambition and geopolitical risk. UBS's forecasts provide a roadmap for navigating this terrain, but success will require agility and a nuanced understanding of policy interdependencies. By aligning positions with the Eurozone's fiscal tailwinds, the pound's carry trade resilience, and the Swiss franc's policy constraints, investors can transform uncertainty into opportunity.