Investing.com – Bank of America (BofA) analysts raised concerns about the sustainability of the Swiss Franc (CHF)'s recent decline. Despite a common trend among investors to short the CHF based on policy divergence themes, BofA suggests that the currency's current weakness may not last.
The Swiss Franc is currently trading near levels seen at the start of 2024, indicating that it retains much of its overvalue. The Swiss National Bank (SNB) has indicated that it is possible to cut rates, which could move back into negative territory. However, BofA feels reluctance from the SNB to adopt unconventional policy measures again.
The analysts are questioning the effectiveness of possible future policy measures once the policy rate reaches what BofA sees as the end point of 0.25%. The SNB may rely on forward guidance and FX interventions, but history suggests that these tools may not have much impact.
Adding to the complexity is the upcoming political landscape in Europe, with the German elections on the horizon. The analysts note a strong correlation between the price volatility of the Euro and the CHF, which has been particularly evident in recent months. The high level of volatility of the Euro is a cause for concern, as it could affect the movements of the Swiss Franc.
Although BofA's forecasts recommend maintaining a short fundamental position on the CHF, they suggest that investors consider hedging strategies. In particular, they recommend the use of wing structures for hedging, which could take advantage of the possible risks associated with the expected increase in volatility before the elections. Germany.
The SNB's reluctance to engage in unconventional policy measures and the potential impact of European political risks on currency volatility suggest a complex backdrop for the CHF.
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