Swiss Franc Decoupling From Risk Appetite

Swiss franc bears rejoiced on Friday when the currency weakened past the psychologically important 1.10 level against the euro – the lowest level since the Swiss National Bank’s shock removal of the minimum exchange rate at the beginning of the year.

But something doesn’t add up. This turbulent summer in global markets should have seen the Swissie soar, not fall, against the euro as it fulfils its traditional role of a safe haven.

Think again. The Swiss Franc has recently defied its decade-long safe haven status.

As Unicredit’s Vasileios Gkionakis pointed out in a note last week ” the franc is increasingly showing signs of decoupling from risk appetite; hence, it is unlikely to benefit in periods of market turbulence like the recent one (…) This is because an important mechanism by which CHF appreciates during risk-off episodes – Swiss residents reversing foreign portfolio investment flows – is no longer in place”, adding that there is still a “measurable overvaluation gap.”

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza