The Euro has slightly recovered against the Swiss Franc, now trading around 0.9320 after reaching lows of 0.9300. This rebound comes after the European Central Bank (ECB) released meeting notes confirming a steady approach to interest rates.

ECB Policy and Challenges

ECB officials are confident in their current strategy to keep inflation at target levels, even with ongoing high service prices and wage growth. They discussed the need for restrictive rates to stabilize inflation expectations, especially considering fiscal uncertainties in larger Eurozone countries. Some ECB members cautioned against making any early changes to policy, fearing this might lead to financial instability. Political uncertainty in France, where President Macron faces challenges in appointing a new prime minister, is also affecting sentiment in the region. In Switzerland, lower inflation expectations reduce the likelihood of the Swiss National Bank adopting negative rates again. Although September’s consumer price index (CPI) rose by 0.2% year-over-year, it was less than the anticipated 0.3%. Monthly prices dropped by 0.2%, following a 0.1% decline in August. The Euro performed variably against major currencies but was strongest against the British Pound. Given the ECB’s firm stance on interest rates, we believe the Euro’s downside is limited for now. The latest inflation figures for the Eurozone were at 2.4%, still above the 2% target, justifying the ECB’s restrictive approach. This makes buying aggressive put options on the Euro less attractive in the short term.

Conflicting Pressures and Market Volatility

On the flip side, the Swiss National Bank shows little interest in loosening its policy, which should help the Swiss Franc stay strong. Even though September’s inflation figure of 0.2% year-over-year was slightly below expectations, it’s the fourth consecutive month of positive inflation, a trend we’ve observed since June 2025. This solid support for both currencies may keep the EUR/CHF pair trading within a narrow range. The biggest uncertainty for the Euro comes from the political situation in France, causing questions about the country’s fiscal health. The risk premium on French debt has increased, with the gap between French and German 10-year government bonds widening to 65 basis points over the past week. A prolonged delay in resolving government leadership issues could lead to a rapid decline in the Euro, regardless of central bank policy. This conflicting environment suggests we might see increased volatility in the next few weeks. It reminds us of late 2024, when mixed signals from central banks and political news caused volatility to rise. Therefore, strategies like a long straddle could be worth considering to profit from a potential price breakout. With the pair currently supported around the 0.9300 level, there’s a chance for range-bound strategies. Selling out-of-the-money call options with a strike price near 0.9400 might allow for premium collection while waiting for a clear market direction. However, any significant escalation in political issues in France would signal an exit from such positions. Create your live VT Markets account and start trading now.

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