After the rapid rise of the Swiss franc, traders may use the euro to replace its role as a funding currency.
智通财经2026/10/07 08:06(1) Last week, the Swiss franc saw a surge of several standard deviations, driven by an aggressive short squeeze triggered by French credit stress, which will force the market to reconsider using the Swiss franc as the preferred funding currency for carry trades. (2) This price movement serves as a reminder that Swiss franc crosses often face asymmetric risks, especially EUR/CHF, which typically rises slowly but can retreat sharply and rapidly during safe-haven flows, as was the case last week. (3) Since the demand for carry trades is unlikely to disappear, traders may turn to using the euro as an alternative funding currency to the Swiss franc, as the euro does not carry the same asymmetric risk. (4) Meanwhile, unfavorable terms of trade shocks in Europe continue to weigh on the euro, especially as winter approaches and inventories are at the lower end of their seasonal range, while energy costs remain elevated.
- Last week, the Swiss franc saw a surge of several standard deviations, driven by an aggressive short squeeze stemming from French credit pressures. This will force the market to reconsider using the Swiss franc as the preferred funding currency for carry trades.
- This price action reminds the market that Swiss franc crosses are often subject to asymmetric risks, especially the euro/Swiss franc pair. Typically, it rises slowly but retreats sharply and rapidly during risk-off shocks—as was the case last week.
- Since the demand for carry trades is unlikely to disappear, traders may turn to the euro as an alternative funding currency to the Swiss franc, as the euro does not possess the same asymmetric risks.
- Meanwhile, trade condition shocks in Europe continue to weigh on the euro, particularly as we head into winter with inventories at the low end of their seasonal range and energy costs remaining elevated.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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