Swiss Franc Rises as Funding Currency Amid Low Volatility Concerns

The Swiss Franc (CHF) is gaining traction as a funding currency due to its low volatility, according to Chris Turner at ING. This shift in preference comes at the expense of the Japanese Yen (JPY), which investors are increasingly avoiding due to concerns about potential intervention from Tokyo and Washington.

Turner notes that while the JPY may be preferred as a funding currency because of its deeper liquidity pools, the CHF offers cheaper borrowing costs and reduces the risk of sudden yen buying intervention. As a result, short positions in CHF/JPY are becoming more popular among investors seeking to express a carry-positive yen view.

In terms of EUR/CHF, Turner believes that a break towards 0.95 will likely require higher oil prices and broader interest rate increases. This is because the Swiss National Bank's (SNB) anchored zero-rate stance leads to franc underperformance in these scenarios.