As forex world evolves, so does the role of the swissy

For decades, the Swiss franc, or “Swissy,” has been known as the safe-haven currency — a refuge for capital in financially turbulent times. In recent years, however, the currency has lost some of its aura in this regard.

Nonetheless, it has remained popular, along with the Japanese yen, as a “funding” currency — i.e., one leg in the carry-trade strategy. At 2.5 percent (in August), Swiss central bank interest rates are low, making the Swissy an attractive currency for the short side of carry trades.

“This strategy is the number one force behind the value of the Swiss franc,” says David Powell, currency strategist at Ideaglobal.

“It is a funding trade,” says Bob Lynch, head of G-10 FX strategy America at HSBC. “The Swissy is a reasonably good currency to short against other high-yielding currencies.”

The euro/Swiss cross (EUR/CHF) pushed to nine-year highs around 1.6688 in late July (Figure 1).

Although many people might assume the dollar/Swiss (USD/CHF) pair is the focus of most currency traders, strategists these days concentrate more on the euro/Swiss cross.

According to Michael Woolfolk, senior currency strategist at the Bank of New York Mellon, this is because there are simply more euro/Swiss transactions in the forex market because of trading between Switzerland and its European partners.