Investors are increasingly turning to the Swiss franc as a funding currency for carry trades, after yen volatility surged due to currency intervention and the prospect of Japanese rate hikes. Data from the Commodity Futures Trading Commission show that in the week ending August 11, hedge funds boosted net short positions in the Swiss franc to near a two-month high, while cutting yen short positions for a second straight week. Supporting factors include Swiss interest rates near zero and the Swiss National Bank signaling readiness to intervene to limit franc appreciation. A strategy of borrowing Swiss francs to invest in Mexican pesos returned almost 4 percent in one month, compared with 1.3 percent using the yen. However, JPMorgan and Credit Agricole see the yen remaining the world's main funding currency over the long term, because the Bank of Japan's policy rate of 1 percent is still lower than in most developed economies.
Credit Agricole SA
JPMorgan Chase & CoInvestors borrowing francs to fund carry trades increases CHF demand, strengthening CHF vs USD.
Yen shorts cut due to intervention and rate hike prospects, weakening JPY vs USD.
