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Investing.com -- Bank of America analysts highlighted the Swiss Franc (CHF) as the primary beneficiary amid current market deleveraging, which continues to impact global markets. Despite ongoing equity market declines and rising foreign exchange volatility, the CHF, along with the Japanese Yen (JPY) and Euro (EUR), has found favorable conditions.
This April, the USD/CHF pair’s movement has been notable, surpassing the decline seen in 2011. Bank of America’s analysis dispels the notion of positive April seasonality for CHF, suggesting instead that its appreciation stems from Switzerland’s significant net foreign asset position.
The USD/CHF trading at lows not seen since 2011 has raised concerns about a potential decoupling from the US long-end bond market. Analysts at Bank of America have debated whether this signifies a temporary undershoot or a more concerning loss of confidence in the US Dollar.
Recent geopolitical events and questions about the US Dollar’s safe-haven status could be contributing factors to this trend. The US Twin Deficits and the shift towards current account surplus currencies like the CHF are also influencing the currency dynamic.
In the realm of foreign exchange, the preference for risk-off plays is becoming more pronounced, with 6-month USD/CHF risk reversals showing a strong bias for USD puts, exceeding levels observed during the global financial crisis and the COVID-19 pandemic. This significant movement has sparked speculation about potential intervention by the Swiss National Bank (SNB).
However, the options market remains skeptical about the effectiveness of such measures. The extreme positions in both CHF and JPY risk reversals may suggest a reversal in the robust asset inflows that US markets have previously enjoyed.
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