BofA Joins Swiss-Franc Bears Predicting Parity After Rate Shock

(Bloomberg) — Bank of America strategists are predicting parity for the Swiss franc against the euro this year after last week’s surprise interest-rate cut by the Swiss National Bank forced them to plot a more bearish trajectory for the currency. 

The SNB’s decision suggests “some urgency in policy easing” and requires a rethink of the pace of the franc’s declines, strategists including Kamal Sharma wrote in a note. The worst-performing currency among G-10 peers this year could extend its drop, hitting parity in the third quarter from around 0.98 francs per euro now, they said.

The last time one franc bought one euro was in March 2023, shortly before it embarked on a rally that took it to a nine-year high by the end of the year. BofA’s new call ranks it with Wells Fargo & Co. and Commerzbank AG among the biggest bears in a Bloomberg poll that sees the franc in a 0.97-0.98 range through year-end.

The rate cut “suggests a faster pace of Swiss franc depreciation than our current forecasts,” the BofA strategists wrote. The franc is down about 5% versus the euro so far this year.

 

Before the SNB decision, BofA forecast parity for the franc in the last quarter of next year. Now the strategists say it will hit 1.10 by the end of 2025. 

BofA’s expectations for total rate cuts this cycle are unchanged at 125 basis points, but the strategists now see them front-loaded. They predict reductions at each quarterly meeting this year before the easing campaign concludes early 2025. 

Falling interest rates will make the franc appealing for so-called carry trades, in which investors borrow in currencies where rates are low and invest the funds where rates, and returns, are higher, BofA said. 

The central bank “has effectively cemented the Swiss franc’s status as the chief funding currency of choice in G-10,” the BofA strategists said. 

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