Swiss Franc Weakness: Is the Consensus Trade Turning?
The Swiss franc, a popular choice for investors betting on weakness, has surprised many this year by not weakening as much as expected. Despite trading 0.1% higher at 0.8525 as of 08:25 ET (12:25 GMT), it’s up 1.3% year to date but down 0.6% over the last month.
Bank of America Securities explains that Switzerland’s tendency for below-target inflation, a central bank committed to preventing significant FX appreciation, and a defensive domestic asset market all point towards expected weakness in the currency. However, this year has seen a shift, with significant weakness in the first half and a recovery in the second half.
The reasons behind this turnaround are well-documented, with geopolitical factors and regime shifts playing a role in supporting the Swiss franc. Looking ahead, the carry trade is expected to continue weighing on the CHF.
As the Swiss National Bank prepares for its policy decision on Sept. 26, Bank of America sees some upside potential in the near term but cautions that we may be entering a sell zone. The question remains: Is the consensus trade for Swiss franc weakness turning?