The EUR/CHF rate fell quickly toward 1.08 on Monday afternoon. The was no immediate trigger for the move; rather, it was an accumulation of factors that promoted CHF strength that came into effect, according to the UBS analyst team. UBS team expects EUR/CHF to undershoot their three-month forecast of 1.08 over the coming weeks – at least until the ECB meets on March 10. Key Quotes “European core inflation surprised to the downside, with the year-over-year reading falling from 1.0% in January to 0.7% in February. This further brought down already ultra-low inflation expectations. Market expectations for the European Central Bank (ECB) to act at its 10 March meeting rose immediately. Discussion about Greece potentially having difficulty servicing its debt in March added to the general search for safe havens.” “The question is, what would the Swiss National Bank (SNB) do should the ECB lower rates further or increase its monthly bond purchases? It seems it is already steadily intervening, at least as suggested by the steady rise in sight deposits over the past months. More intervention is possible, but it might not be enough.” “SNB head Thomas Jordan has suggested in recent days that one could do more with negative interest rates – either take them deeper into negative territory or reduce the exemptions. However, he also warned that unconventional measures need to be taken with care, as negative rates have negative effects on the financial system.” “Looking at things from this angle, we believe the wave of CHF strength on Monday was simply an expression of this relationship: Any European troubles will drive Swiss interest rates and strengthen the Swiss franc.” “We therefore think the EUR/CHF is likely to undershoot our three-month forecast of 1.08 over the coming weeks – at least until the ECB meets on 10 March.” For more information, read our latest forex news.