Investing.com – Playing for Swiss Franc weakness is by far the most consensus trade since the start of the year, according to Bank of America Securities, but the currency has failed to weaken as much as expected.
At 08:25 ET (12:25 GMT), the price was trading 0.1% higher at 0.8525, up 1.3% year to date but down 0.6% over the course of the past month.
The reasons behind the Swiss franc’s expected weakness are solid, BOA explains, as Switzerland is a country with a historical tendency to keep inflation below target. The country has a central bank committed to preventing significant currency appreciation and a defensive domestic asset market, all of which contribute to a country where currency weakness is to be expected.
“To use a popular analogy, however, this has been a year of two halves: significant currency weakness in the first half and a recovery in the second half,” analysts at BOA Securities said in a September 3 note.
“The causes of the turnaround in CHF are well-known and well-documented and are a striking reminder that CHF retains its risk-hedging appeal,” the bank added. “Geopolitics and regime change have continually come to CHF’s aid, and that has been the case this year as well.”
Looking ahead, the US bank likely still sees the carry trade as a dominant factor weighing on the CHF.
“In the short term, the trend favors some upside, but we think we are entering the sell zone before the SNB policy decision,” BOA said, while the Swiss National Bank would make its next call on September 26.
