Swiss Franc’s Haven Comeback Seen in Options Market Trading
(Bloomberg) — The Swiss franc hasn’t been playing its traditional haven role of late, even as the war in Iran keeps geopolitics fraught. Options trading suggests the anomaly won’t last.
The currency has been tracking equities: rising alongside stocks on Wednesday and falling with them early Thursday. The franc and the S&P 500 have moved in tandem in seven of the past 12 sessions. At a time when investors might be expected to pile into the safest assets, one-week options show sentiment is the least bullish on the franc versus the euro since August.
But looking out over the coming months, options pricing shows the highest demand compared with short-term contracts since August. That suggests traders are simply wary of holding the franc over the next few sessions due to expectations the Swiss central bank will step in to counter the currency’s gains.
Traders are positioning for the Swiss National Bank to lean against franc strength after officials reiterated their readiness to sell the currency at their March 19 meeting. President Martin Schlegel reinforced that message last week, with the trade-weighted index sitting near multi-year highs.
Beyond that, the franc’s haven role will likely reestablish itself given the heightened concerns around the Middle East, strategists at Goldman Sachs Group Inc. wrote.
“An explicit shift in the SNB’s intervention bias at the onset of the current energy shock has been key to the Franc’s underperformance in March,” strategists including Lexi Kanter wrote. “A similar pattern to the 2022 shock should apply this time around, with initial SNB-driven franc underperformance giving way to clearer euro-franc downside.”
The franc traded 0.2% weaker at 0.9219 per euro as of 11:30 a.m. in London. Data showed Switzerland’s inflation rate jumped in March to the quickest pace in a year.
What Bloomberg strategists say…
“The franc hasn’t consistently behaved like a haven currency since the conflict broke out, but its recent pullback must be seen in the context that it was hovering close to some of its strongest levels against both the dollar and the euro in the run-up to the war. The SNB may be active in the market.”
— Ven Ram, macro strategist. For the full analysis, click here.
At the same time, the franc has taken on characteristics similar to gold, which became as much a speculative trade as a haven during last year’s “Sell America” episode, when the metal saw exceptional demand and volatility, according to Tommy von Bromsen, a foreign exchange strategist at Svenska Handelsbanken AB.
“When investors pull back from risky assets, that partly means lowering speculative positioning — and that means selling the franc too,” he said.
(Updates with franc price, inflation data in seventh paragraph.)
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