The SNB raised its policy rate by 25 basis points as expected, while at the same time sending out a very hawkish signal. With the central bank expecting inflation to remain persistent for some time, another 25 bps move is expected for September. 

EUR/CHF has edged higher today after the SNB avoided the more aggressive 50 bps rate hike option. However, this exchange rate remains heavily managed by the SNB and we doubt it will embark on a major rally just yet.

If we are right with our forecast for a weaker dollar over the next 12 months, it looks like a lower USD/CHF will do the heavy lifting for the modest gains in the nominal CHF, needed to keep the real exchange rate stable. This means that EUR/CHF will probably continue to trade in a 0.97-0.99 range for most of this year and will only be allowed by the SNB to trade substantially higher if USD/CHF falls even harder.