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Oct 25 - 12:55 PM

SocGen: USD/CHF Lags the Upside in Rates Differentials; Where to Target?

By eFXdata  —  Oct 25 - 11:00 AM

Synopsis:

SocGen notes that USD/CHF has not kept pace with recent increases in short rates differentials, trading below where it should be based on historical correlations.

Key Points:

  • Over the past year, USD/CHF has closely followed short rates differentials, but it now lags, with expected trading at 0.88 versus the current 0.86.
  • Both USD and EUR short rates have increased, while CHF rates have decreased, affecting the EUR/CHF pair similarly; however, the correlation is stronger with USD/CHF.
  • While the Swiss franc (CHF) remains robust, the lag in USD/CHF suggests limited gains for the currency.

Conclusion:

The current dynamics indicate that USD/CHF's performance is not fully reflective of the underlying rates differentials, potentially limiting CHF's upside against the USD.

Source:
Société Générale Research/Market Commentary

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