A surprise change in monetary policy by the Swiss National Bank has upped the ante for the European Central Bank ahead of a meeting next week, during which it is expected to announce new stimulus measures, Jeremy Stretch, head of FX strategy at CIBC, told CNBC.
"If the ECB does not step up to market expectations, then I think we would see further degrees of elevated volatility, and hence the reason that investors have been seeking the safety of bonds," he said in a "Squawk Box" interview on Friday. "The question is will the ECB disappoint or will they provide enough liquidity to the system to at least assuage investors?"
While Europe's peripheral economies have been under pressure for some time, the euro has cheapened considerably already from highs seen in early 2014, Stretch said. Over time, that will provide some loosening of monetary conditions, he added, but ultimately that loosening must accelerate.
"That's the reason why the euro effectively continues to be talked down by the ECB, and that's why the policy of expanding its balance sheet is effectively aimed at boosting economic conditions," he said.
Switzerland's decision in 2011 to peg its currency to the euro essentially absolved the Swiss of setting their own monetary policy, but that line became increasing untenable in recent weeks, he said. The consequence has been an extreme value loss for the Swiss, adding up to roughly double the profit the SNB made last year, he said.
One could argue the current valuation of the Swiss franc is more realistic in view of its huge current account surplus of 10 to 12 percent of GDP, Stretch said.
The impact on the euro zone will be a net benefit, he added, as a cheapening of the euro will help Europe's periphery and further boost Germany, which has continued to drive growth in the currency union. "Without that motor of growth, the euro zone looks much sicker, and I think that would be much more damaging for the global economy, which of course, the euro zone is still an integral part."
Discussions of the U.S. dollar and euro reaching parity are likely pre-emptive, but the euro could fall back to lows of $1.10 or $1.12 against the dollar, he said.