The EUR/CHF price has recovered slightly as the market wait for the upcoming ECB interest rate decision. Other pairs like the EUR/GBP and EUR/USD have also bounced back as the market waits for the first ECB rate hike in more than a decade. It is trading at 0.9915, which is about 1.15% above the lowest level this week.
ECB and SNB convergence?
The EUR to CHF exchange rate has risen slightly as investors wait for the first ECB rate hike in more than a decade. Analysts expect that the bank will hike interest rates by either 0.25% or 0.50% as it battles the soaring inflation. Data published on Tuesday revealed that European inflation soared to a multi-decade high of 8.6% in June.
A rate hike by the ECB will signal that the bank is converging with the Swiss National Bank (SNB). The latter decided to hike interest rates by 50 basis points in June. That was a surprise since Swiss inflation is significantly lower than in other countries. Also, the SNB is known for its dovish tone since it values a relatively weak Swiss franc.
ECB’s rate hike could have a ripple effect in Europe, a bloc that has gotten accustomed to negative interest rates in the past decade. For example, some countries like Italy and Spain will likely see some volatility. For example, the ECB held an emergency meeting in June after its asset purchase program ended. At the time, the Italian and German bond yields had widened as risks emerged.
As the euro sell-off accelerated, the EUR/CHF pair crashed below parity earlier this month. The pair is now rising as buyers attempt to push it above parity. It has risen above the 25-day and 50-day moving averages, while the Relative Strength Index (RSI) has been uptrend.
Therefore, the pair will likely keep rising ahead of the ECB decision. It will rise to the 23.6% Fibonacci retracement level at 0.9980. This view will be invalidated if it drops to 0.9850.