Market Analysis

Swiss franc to ski downhill versus the US dollar?

It’s possible that the US dollar could benefit in the short term if markets decide the US Tax Cuts and Jobs Act will be agreed and passed by Congress and signed into law by President Trump before Christmas. Certainly the French bank BNP Paribas feels that on the issue of the US tax legislation “the chance of success before the year-end has risen.” To the French firm “the near-term distribution of possible outcomes appears skewed to the upside for the USD: if the bill passes quickly, we would expect US equities to rally and market pricing in of Fed rate hikes to rise, supporting the USD.”

But how best to express such a view? Traders will have their own views but BNP Paribas has alighted on dollar/Swiss franc (USDCHF) as its preferred medium through which to harness its perception of greenback strength. The French bank argued that the CHF is “an attractive low-yielding funder for USD long positions.” In its opinion “the CHF lacks the high sensitivity of the JPY to risk aversion events and avoids the upside risks for the EUR associated with a potentially more hawkish message from the European Central Bank (ECB) at its December policy meeting.” Traders will decide for themselves whether they agree or not with the logic.

Written by Neal Kimberley, External Currency Analyst.