Swiss Franc Takes Center Stage in Carry Trade Shift

A potential shift in the carry trade market is emerging as investors consider the Swiss franc as an alternative to the yen. The recent intervention by Washington and Tokyo to prop up the yen has led to a reevaluation of funding currency choices.

The Swiss franc, despite being 12% stronger against the euro than five years ago, is seen as a more attractive option due to its lower borrowing costs and lower volatility. Analysts predict that the franc will continue to weaken if Washington and Tokyo are successful in strengthening the yen.

Market participants are expected to rotate some of their funding positions from the yen to the Swiss franc, according to Fredrik Repton, senior portfolio manager at Neuberger Berman. The euro-Swiss exchange rate is seen as a key indicator of market trends, with Rabobank revising its 9- to 12-month target for the euro/Swiss franc to 0.95 from 0.94.