EUR/CHF declines on short-lived risk rally

FXstreet.com (London) - EUR/CHF has shed gains made in the short-lived risk-on rally. The fears of contagion from EM risk, particularly from crisis-hit Turkey, had driven haven flows into the Swiss franc. However, the emergency meeting held yesterday by the Central Bank of the Republic of Turkey helped to ease concerns.

EM pressure will continue

The CBRT hiked rates by 425 basis points to 12 percent easing contagion fears over the runaway lira. The risk-on rally initially eased some CHF strength on haven demand, but the rally has been short lived, pushing CHF and JPY back up on haven demand. With the FOMC expected to announce a further cut in the Fed’s monthly asset purchases, EMs and Turkey in particular could be put under further pressure thanks to over exposure to dollar-denominated debt.

Freeze in European borrowing

The Euro lost some steam on ECB data showing a continued freeze of European business credit conditions, down 2.3 percent year-on-year in December. The collapse of private lending combined with weak growth within the Eurozone has increased bets that the ECB will move to try and stimulate lending.

EUR/CHF is currently trading at CHF1.2256, recovering slightly from a session low of CHF1.2254, down o.26 percent on the day.