Goldman Sachs “Reverse Currency Wars” thesis, forecast EUR/CHF as low as 0.95

Goldman Sachs discusses CHF outlook and maintains a bullish bias over the medium-term.

• ‘The SNB surprised markets with a 50bp hike last week and a change to its intervention framework.
• The move confirms our bullish view on the Franc and is the strongest evidence yet of our “Reverse Currency Wars” thesis-the era of targeting weaker exchange rates is over (and accelerating through the year) is probably too high relative to the SNB’s inflation aim.
• The Bank’s research and our own have found that a 1%appreciation in the currency can lower inflation by about 0.1-0.2%. Taken together, we think the Bank is likely to target about a 5% appreciation in the real exchange rate, which would put it around the post-2015 average,” G
• “With this in mind, we are rolling forward our EUR/CHF forecasts to 1.00, 0.98 and 0.97 in 3, 6 and 12 months (from 1.01, 1.00 and 0.99 previously) and our end-2023 forecast to 0.95 (from 0.97), which we think is roughly in line with the SNB’s implied currency aim,”