Investing.com – A play on the Swiss franc’s weakness has been the most bullish trade since the start of the year, according to Bank of America Securities, yet the currency has failed to weaken as much as expected.
At 08:25 ET (12:25 GMT), the stock was trading up 0.1% at 0.8525, up 1.3% year-to-date but down 0.6% over the past month.
Bank of America explained that the reasons behind the expected weakness of the Swiss franc are strong, given that Switzerland has a historical tendency to achieve below-target inflation rates. It has a central bank committed to preventing excessive appreciation of the foreign currency, and a defensive domestic asset market, all of which add up to the country being in a position where foreign currency weakness is expected.
“However, to use a common metaphor, this year has actually been split into two halves: a significant weakness in the FX market in the first half and a recovery in the second half,” analysts at BOE Securities said in a note dated Sept. 3.
“The reasons for the Swiss franc’s shift are well known and well documented, and serve as a clear reminder that the Swiss franc retains its attractiveness as a risk hedge. Geopolitical factors and regime shifts have consistently come to the rescue of the Swiss franc, and this has been the case this year,” the bank added.
Looking ahead, the US central bank still sees the interest rate trade as likely to be a dominant factor affecting the Swiss franc.
“In the near term, the trend is slightly up but we believe we are entering sell territory ahead of the SNB policy decision,” Bank of America said, with the SNB due to make its next decision on September 26.