Fade the CHF/USD outperformance via FX derivatives

The Swiss franc has surged vs. US dollar to the highest levels since the 2011 Eurozone crisis, due to today's climate of elevated market stress and widespread deleveraging. Investors are increasingly drawn to the franc's stability despite its low yields.

This appreciation reflects both seasonal patterns and a fundamental shift driven by Switzerland's robust external position alongside waning confidence in the dollar.

A notable divergence has emerged between USD/CHF exchange rates and US Treasury yields. While American interest rates remain high, the dollar's safe-haven appeal has weakened amid ongoing geopolitical tensions and growing US fiscal challenges.

This disconnect has accelerated demand for surplus currencies like the franc as investors reduce exposure to US assets. The following difference in the FX dynamics compared to 1y1y forward interest rates swaps justifies the miss-match between IR and FX worlds during the last couple of months.