EUR/CHF consolidates in mid-1.0500s as more cautious ECB rhetoric takes sting out of tightening bets

• EUR/CHF consolidated in the mid-1.0500s on Tuesday, finding support ahead of the 1.0520 area but unable to test 1.0600 again.
• A more dovish tone to ECB rhetoric this week versus last has taken the sting out of ECB tightening bets.

EUR/CHF consolidated in the mid-1.0500s on Tuesday, with buying interest coming into play upon a dip back towards support in the form of the earlier 2022 highs around 1.0520 mark. Meanwhile, the pair was never able to muster a meaningful push back towards earlier weekly highs at 1.0600 reached in the immediate aftermath of the ECB’s hawkish shift last week. That can likely be explained by the fact that, this week, ECB speakers have sought to strike a more balanced tone in order to push back against what ECB’s Francois Villeroy de Galhau on Tuesday said was an over-the-top market reaction last week.

ECB members, including President Christine Lagarde herself, have sought to emphasise that the bank might be headed towards policy tightening, and that could mean a hike later this year, but would not rush to conclusions. Meanwhile, Lagarde and others were keen to emphasise that while policy normalisation is on the table (i.e. returning rates to “neutral”), policy tightening (raisine rates above “neutral”) most certainly is not. This week’s rhetoric has taken the sting out of market pricing, which was implying the possibility of a rate move as soon as July.

EUR/CHF will be watching a speech from the ECB’s Chief Economist Philip Lane on Thursday, where he will likely echo, or might even take a more dovish line, than Lagarde. Further dovishness may continue to dent the euro and that might mean EUR/CHF continues to pull back from earlier weekly highs and actually tests support at 1.0520.

Longer-term, if the now expected ECB hawkish shift in its inflation forecasts and rate guidance is forthcoming at the March meeting, that might argue for a higher EUR/CHF. That would certainly make the SNB happy. But continued higher inflation in the Eurozone versus low inflation Switzerland means that as the value of each euro is eroded at a faster pace than each Swiss franc, the medium-term direction for the pair may continue to be lower.