Swiss Franc Gains as US Treasury Signals Bond Buybacks

The Swiss franc rose sharply against the US dollar and euro on Wednesday. This change followed an announcement from the US Treasury about increased repurchases of long-term bonds. The dollar/franc exchange rate fell from over 0.81 to just under 0.80. The euro/franc rate dropped from over 0.94 to as low as 0.9323. Traders linked this shift mainly to a weakening dollar. This was influenced by the Treasury's plan to stabilize the bond market after yields reached their highest levels since 2007, according to reports from swissinfo.ch.

Carry Trade Shifts

As the franc becomes more appealing, carry traders are shifting towards it for funding. Hedge funds have raised their net short position in the franc to near a two-month high. They have also cut their yen shorts for a second week in a row. Tobias Jungmann, head of Americas foreign-exchange options at Bank of America, noted that the market is adding short Swiss franc exposure to fund foreign-exchange carry trades. The strategy of borrowing in the franc and investing in higher-yielding currencies is gaining traction. Returns on these trades are significantly outperforming those funded by the yen.

Market Reactions

The US Treasury's announcement also caused a notable rise in gold prices. Gold increased by more than $100 to just under $4,500 per ounce. Bitcoin surged back to nearly $70,000, its highest level since early June. The Treasury's move reflects concerns about the ongoing sell-off in the bond market. This has prompted capital flows to seek stability in other currencies and assets.

Related coverage: Gold Prices Surge Over 3% After Treasury Liquidity Support.

Based on reporting by: swissinfo.ch