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Chris Turner at ING explains that USD/CHF’s sharp drop after the US Treasury buy-back announcement was mainly position adjustment after a hawkish Fed narrative had favoured longs. If Treasury support is risk-positive, low volatility should sustain carry trades, with the Swiss Franc (CHF) increasingly preferred over the Japanese Yen (JPY) as a funding currency and EUR/CHF seen returning toward the 0.9400 area.
Swiss Franc seen as key funding currency
“Wednesday’s US Treasury announcement on buy-backs saw USD/CHF lead the dollar lower. This recalled events of April 2025, when concerns over policy credibility hit all US [asset] classes and the dollar and the Swiss franc were preferred. Our take on this week’s events is different.”
“We think the sharp sell-off in USD/CHF was driven by position adjustment after the June narrative of a more hawkish Fed had favoured USD/CHF longs.”
“If we’re right that greater interest in protecting the Treasury market is more a risk-positive story, then volatility will stay low, and interest will remain firm in the carry trade.”
“Here, we think the Swiss franc rather than the yen will increasingly become the preferred funding currency and send EUR/CHF back to 0.9400. We are encouraged by the EUR/CHF bounce back above 0.9350 since Wednesday.”
