Swiss Franc Gains Appeal as Funding Currency as Investors Weigh Yen Intervention Risk

ING strategist Chris Turner says low volatility continues to put pressure on traditional funding currencies such as the Swiss Franc and Japanese Yen, encouraging investors to look for opportunities in carry trades.

While the Yen benefits from deeper market liquidity, ING believes investors may increasingly prefer the Swiss Franc as a funding currency. Lower borrowing costs are one reason, while another is the risk that authorities in Tokyo or Washington could support sudden Yen-buying intervention.

This intervention risk could make CHF-funded positions more attractive for investors seeking to avoid unexpected moves in the Japanese currency.

ING also sees short CHF/JPY positions as an increasingly relevant way to express a constructive view on the Yen. The trade can offer positive carry characteristics, while the Swiss Franc and Yen share several similar features as low-yielding funding currencies.

For EUR/CHF, ING believes a move toward the 0.95 area would likely require a combination of higher oil prices and broadly higher global interest rates.

Such an environment could leave the Swiss Franc relatively weaker because the Swiss National Bank continues to maintain its zero-rate policy stance.