Swiss Franc Gains Popularity as Funding Currency Amid Low Volatility

The Swiss franc is increasingly being used as a funding currency in global markets, despite its traditionally low volatility remaining at historically low levels.

According to ING strategists, the franc's low interest rates and the Swiss National Bank's (SNB) accommodative stance are key factors driving investors to borrow in CHF to fund investments in higher-yielding assets.

This so-called carry trade has gained traction as market conditions remain calm, with volatility subdued and the risk of sudden exchange-rate swings perceived as lower.

The implications for the Swiss economy and global markets are mixed. On one hand, a growing funding role for the franc may increase demand for CHF, potentially supporting its value. However, if volatility spikes or risk appetite fades, unwinding of such trades could lead to sharp franc appreciation, which would hurt Swiss exporters.