Swiss Franc Undervaluation Fuels Mean-Reversion Trades Against APAC Currencies

According to Geoff Yu from BNY, the Swiss Franc is currently undervalued based on both nominal and real effective exchange rate measures. The CHF has reached one-year and 15-month lows in these respective areas.

This undervaluation presents an opportunity for mean-reversion trades against surplus APAC currencies such as SGD and CNY. Yu favors this approach over others, given the current policy backdrop and recent changes in global yields.

The Swiss National Bank's decision to remain on hold has reinforced the Franc's role as a funding currency, but valuations now suggest that there is potential for recovery.