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ASSET MANAGERS BUYING FRANCS AT FASTEST PACE IN 10 YEARS, SAY UBS

The Swiss franc CHF= is trading around its strongest against the dollar since 2015's euro de-pegging shenanigans, and UBS say one reason for this, and a reason why it could continue, is big franc buying by asset managers.

Using their own trading volumes data -- and UBS are a pretty big beast in FX generally (and clearly big in Switzerland) -- they say cumulative year-to-date purchases of the franc by asset managers are running at their highest pace in the 10 year history of their data set.

And, they say, that fits with their conversations with clients about increasing FX hedging on U.S. assets.

Whether asset managers are hedging the FX risk on their U.S. holdings was a sell-side favourite last year, and the broad consensus is overall there was rather more talk than action.

However, the dynamic is slightly different in Switzerland because when stocks sell off, dollar/franc normally falls, so franc funded investors get hit with a double whammy.

That's different if you're funded in a 'risk on' currency.

And if asset mangers keep buying francs, clearly that's a reason for more strength.

The next question is does that invite Swiss National Bank intervention.

And here UBS think probably not.

They point out that dollar/franc has fallen a lot more than euro/franc and it's the latter that really matters for the Swiss economy -- and hence the intervention question -- as the dollar accounts for only around 17% of Switzerland's trade weighted index.

(Alun John)

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