Swiss Franc Gains Favor Over Yen for Carry Trades

Traders turn to Swiss Franc for funding carry trades

Traders are increasingly favoring the Swiss franc over the yen for funding carry trades, following the recent interest rate cuts in Switzerland. State Street Global Advisors and Citigroup Inc. view the franc as the primary choice for borrowing in a weakening currency, as compared to the yen. Meanwhile, the Bank of Japan's decision to raise rates is expected to strengthen the yen against the franc.

Key Takeaways:

• Traders are shifting towards the Swiss franc for funding carry trades instead of the yen.
• Recent interest rate cuts by the Swiss central bank have contributed to the franc's appeal.
• State Street Global Advisors and Citigroup Inc. are backing the franc as the top choice for carry traders.
• The Bank of Japan's rate hike is anticipated to bolster the yen against the franc.

Analysis:

The shift towards using the Swiss franc for carry trades signifies a significant change in currency market dynamics. This move could potentially alleviate pressure on the Japanese yen, while also highlighting the impact of central bank decisions on currency preferences.

Do You Know?

• Carry trades involve borrowing money in a low-interest-rate currency to invest in a higher-interest-rate currency.
• The decision to cut interest rates by the Swiss central bank has led to a plunge in the value of the franc, making it more attractive for carry traders.