The EUR/CHF cross entered midweek with a confident rise, trading around 0.9220–0.9230 after bouncing off early-June lows of about 0.9130. The pair is exhibiting a stable upward trend amid a key divergence in the monetary policies of the European Central Bank (ECB) and the Swiss National Bank (SNB).

Unlike many other currency pairs dominated by the US dollar, the dynamics of EUR/CHF are shaped by two unique factors: on one hand, the ECB is raising rates for the first time since September 2023 amid an energy inflation shock; on the other hand, the Swiss National Bank continues to rely on currency interventions as the primary tool for containing inflation and maintaining the competitiveness of the Swiss economy.

Fundamental Background: Two Central Banks — Two Different Approaches

1. ECB: First Rate Hike in Nearly Three Years with a "Cautiously Hawkish" Signal

On June 11, the European Central Bank announced a 25-basis-point increase in key interest rates, as expected. Consequently, the rate for main refinancing operations, the marginal lending facility, and the deposit facility now stand at 2.4%, 2.65%, and 2.25%, respectively.

Key Takeaways from the ECB Statement

• Inflation forecasts raised: The ECB expects the overall inflation rate to average 3.0% in 2026, then decrease to 2.3% in 2027 and 2.0% in 2028. The core inflation forecast has been increased to 2.5% for 2026 and 2027.
• Growth forecasts lowered: The new growth forecast for the eurozone is only 0.8% for 2026 (with a subsequent acceleration to 1.2% in 2027 and 1.5% in 2028), reflecting the damage from the energy shock to the eurozone economy.
• Commitment to a "meeting-by-meeting" approach: The ECB emphasized that it does not commit to a specific rate trajectory and that all decisions will depend on incoming data.
• Recognition of risks: The bank stated that the outlook remains uncertain, with risks of rising inflation and declining economic growth.

Although the rate hike was widely anticipated by the markets, an important signal was that ECB President Christine Lagarde maintained a cautiously hawkish tone, acknowledging the risks of further inflationary pressure from rising energy prices. This allowed markets to maintain expectations of a possible second rate hike in the coming months.

2. Swiss National Bank: Betting on Interventions

In contrast to the ECB, the SNB is in a completely different situation. Inflation in Switzerland remains low, allowing the SNB to keep its key interest rate at 0.00% (and not consider raising it). Instead, the primary tool is currency interventions.

Since the last meeting, statements from SNB representatives have emphasized the bank's increased readiness to intervene in currency markets. Chairman Schlegel (on June 3) noted that "the war in Iran could increase pressure on the franc," and the SNB has "heightened its readiness for currency market interventions."

Why the SNB Is Not in a Hurry to Raise Rates

• Low inflation: While inflation in the eurozone stands at 3.2%, it is near the target level in Switzerland. The SNB is even concerned about deflationary risks if the franc strengthens excessively.
• Protection of exports: A stronger franc makes Swiss exports (watches, pharmaceuticals, equipment) more expensive. Given that the eurozone is Switzerland's key trading partner, a weak euro would be highly undesirable.
• Inflationary import: The SNB believes that the strengthening of the Swiss franc (which has occurred in recent months, despite a recent correction) will counteract any potential secondary inflationary effects from rising energy prices.
• Upcoming intervention data: On June 30, the SNB will release data on currency interventions for the first quarter. Economists expect these figures to show a notable increase in operations against the strengthening franc after several very calm years for the SNB in this area.

Interest Rate Differential: The Main Driver for EUR/CHF Growth

The current divergence in policies creates classic prerequisites for the euro to strengthen against the franc. All of the above should support EUR/CHF around 0.9200, with a possible move towards 0.9300 in light of the ECB meeting's outcomes.

What This Means

• Markets are pricing in three ECB rate hikes (including Thursday) over the next 10-12 months.
• Swiss rates, on the contrary, remain "tied to zero," with the risk of even negative rates in the event of a significant strengthening of the franc.
• This differential makes the euro more attractive for carry trades and investments, creating ongoing demand for the EUR/CHF pair.

Geopolitical Factor: The "Safe Haven" Status of the Franc Is Weakening

The Swiss franc is traditionally considered one of the major "safe-haven assets" alongside gold. However, the current conflict in the Middle East demonstrates a paradoxical dynamic.

Why the Franc Is Not Rising Amid Conflict

• Inflationary channel: The war in Iran and the closure of the Strait of Hormuz have led to a sharp spike in energy prices. For Switzerland, as for the eurozone, this creates inflationary risks, but for the SNB, these are secondary.
• SNB interventions: The SNB has already stated its "increased readiness for interventions," and analysts believe it may well sell francs to prevent excessive strengthening.
• Direct threats: Investment banks (e.g., J.P. Morgan) have previously warned that, in the event of a full-scale war, Switzerland could be drawn into the conflict due to its role in asset management and financial settlements, thereby weakening its status as a "safe haven."

Key Events

Conclusion

The EUR/CHF cross is at the epicenter of the divergence in monetary policies between the ECB and the SNB. On one hand, the ECB raised rates for the first time since September 2023 and is likely to maintain a cautiously hawkish tone, with markets pricing in three hikes over the next 10-12 months. On the other hand, the SNB remains at the zero rate (0.00%) and is betting on currency interventions rather than rate hikes to curb inflation and support export competitiveness.

The interest rate differential (200+ bps) is a key driver of the pair's growth. An additional factor supporting the euro is the ECB's "cautiously hawkish" signal, which allows markets to maintain expectations of further tightening.

The key zone of 0.9197 (EMA144 on the daily chart)–0.9240 (EMA50 on the weekly chart) will become the arena for a decisive battle in the coming days.

A technical breakout below this level could trigger a short-term correction to 0.9170-0.9130, but fundamental factors (interest rate differential, hawkish ECB) indicate that the likelihood of a rise above remains.

Traders should exercise caution and closely monitor further statements from representatives of both central banks, the SNB's upcoming intervention data (end of June), and geopolitical developments in the Middle East.