💹🔻We Remain Short CHF Vs JPY On Rich Franc: J.P. Morgan FX Strategy

CHF has shown a lower sensitivity to US yields in the past year as poor global growth dynamics overshadowed the former channel, while JPY has remained geared to US yields, and so the repricing higher in rates has thus recently squeezed our CHF/JPY short.

As we have been flagging, the CHF NEER has been well- captured by cumulative global growth FRIs in the past 20 years. Currently, growth forecasts have been significantly upgraded in 39% of economies, the highest number since spring 2021 when countries emerged from lockdowns. At the same time, CHF screens rich on a fair value model of peripheral spreads and VIX, which it had been tracking until November.

We remain patient with CHF/JPY in the meantime however as there is somewhat of a vacuum on the economic calendar until those events. While higher US rates weigh on JPY, higher Euro area rates - which are perhaps likely to reprice higher given stickier inflation than in the US and a potentially more hawkish ECB - would weigh on CHF. In fact, our economists added another 25bp hike to their ECB forecast today. Ultimately, we are skeptical that markets can reprice US long-end yields rate much higher than current levels and so this should cap CHF/JPY upside.

- J.P. Morgan FX Strategy