Swiss Franc Surges as Low Volatility Fuels Carry Trades

The Swiss Franc has seen its funding role grow as volatility remains low. According to Chris Turner at ING, the sharp drop in USD/CHF after the US Treasury buy-back announcement was mainly a position adjustment due to the hawkish Fed narrative favoring longs.

This event recalled the events of April 2025, when concerns over policy credibility hit all US asset classes and the dollar and Swiss franc were preferred. However, Turner notes that this week's events are different, driven by position adjustments rather than market expectations.

With low volatility expected to sustain carry trades, the Swiss Franc is increasingly becoming a preferred funding currency over the Japanese Yen. As a result, EUR/CHF is seen returning toward the 0.9400 area, with some signs of a bounce back above 0.9350 since Wednesday's announcement.