Swiss Franc: Growing role as funding currency – ING
Chris Turner at ING highlights low volatility weighing on the Swiss Franc (CHF) and Japanese Yen (JPY), with investors increasingly favouring franc funding to avoid potential Yen intervention. Short CHF/JPY is seen as a carry-positive way to express a Yen view.
Swiss Franc and Japanese Yen remain low in volatility, prompting investors to favor franc funding to sidestep potential Yen intervention, states Chris Turner at ING. Short CHF/JPY is seen as a carry-positive method to voice a Yen perspective. For EUR/CHF, a shift toward 0.95 may necessitate higher oil prices and elevated interest rates, considering the Swiss National Bank's zero-rate policy, thus leading to franc underperformance.
Low volatility continues to impact primary funding currencies such as the Japanese yen and the Swiss franc. While the yen might be favored as a funding currency due to its larger liquidity, investors are anticipated to turn more to franc funding, not just for reduced borrowing costs but also to evade the risk of unexpected yen purchasing by Tokyo and Washington.
Should investors believe intervention is effective, short CHF/JPY positions will become more popular, not only because it is one of the rare ways to express a carry-positive yen view but also because the two currencies share similar investment traits. EUR/CHF may approach 0.95 only if oil prices rise and interest rates increase across the board, as the Swiss National Bank's zero-rate policy causes franc underperformance.
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