Carry Trade Affects Swiss Franc

Low volatility combined with even lower interest rates has made the Japanese Yen into a popular target among forex traders, who borrow in Yen and short the currency in favor of higher-yielding alternatives.  It turns out the Japanese Yen, however, is not the only currency that is being driven downward by the carry trade; the Swiss Franc (CHF) has also become a victim in the last couple years.  Switzerland’s benchmark interest rate, at 2.25%, is the second lowest among industrialized nations, after Japan.  Moreover, the Swiss Franc is highly stable and liquid, which means it is well-suited for the carry trade.  Dow Jones News reports:

With global risk appetite remaining strong and carry trades remaining one of the primary driving forces in global currency markets, the franc is unlikely to get much respite from rate hike expectations.

Read More: Swiss Franc Slide Likely To Continue