Swiss Franc Gains Popularity as Carry Trade Alternative Amid Yen Intervention

A rare U.S.-Japanese intervention to prop up the yen has led some investors to consider the Swiss franc as an alternative for carry trades.

The Swiss franc, which is still 12% stronger against the euro than five years ago, has been a popular funding currency due to its low interest rates and safe-haven inflows. However, its strength has made exports more expensive and squeezed economic growth in Switzerland.

Analysts say that market participants will be thinking about rotating some of their funding positions away from the yen and towards the Swiss franc. Fredrik Repton, senior portfolio manager at Neuberger Berman, said 'If you look at the performance of euro-Swiss, that's probably more instructive to how the market environment has been shaping up.'

The Swiss National Bank has kept borrowing costs pinned down at 0%, making it an attractive funding currency compared to the Japanese yen. Adarsh Sinha, head of global G10 FX strategy at BofA, said 'Not only are Swiss rates lower than the Japanese yen, but (franc) volatility is lower as well.'

Rabobank has revised up its 9- to 12-month target for euro/Swiss franc to 0.95 from 0.94, reflecting expectations that the franc will weaken further.