BofA suggests staying short on CHF, particularly against USD and GBP, as post-election volatility subsides and G10 rate repricing supports a weaker CHF. While political risks may pose a minor obstacle, BofA sees CHF depreciation as likely due to policy divergence, with recent fiscal stimulus in the UK reinforcing the case for long GBP/CHF.
Key Points:
CHF Weakness Expected: Following the US election, BofA expects normalization in volatility and G10 rate adjustments, which support a weaker CHF heading into year-end.
Policy Divergence and SNB Cuts: CHF depreciation has been driven by Swiss policy moves, including an SNB rate cut, and ongoing yield compression. Increased Swiss inflation has also pressured CHF.
Positioning in USD/CHF and GBP/CHF: BofA favors short CHF positions in USD/CHF and recently opened a long GBP/CHF position via a three-month ratio call spread, driven by UK fiscal stimulus enhancing policy divergence.
Risk Management Considerations: While CHF shorts are promising, BofA advises a cautious approach due to potential political uncertainties that could affect CHF.
Conclusion:
BofA recommends holding short CHF positions in USD/CHF and GBP/CHF, as volatility recedes and policy divergence favors a weaker CHF. Though political noise may cause short-term volatility, BofA sees CHF depreciation persisting into year-end, with UK fiscal moves strengthening the case for GBP/CHF.
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