With Swiss rates at zero and Japan preparing for possible hikes, investors are turning to the franc as a funding currency. Rabobank sees limited gains for USDCHF but warns of risks if safe haven demand returns.
Investors looking for cheap funding options may soon move past the Japanese yen. As Japan hints at raising interest rates, Switzerland's zero policy rate is drawing attention, making the Swiss franc a possible replacement for the yen in global borrowing strategies. The Swiss National Bank (SNB) is expected to keep its key rate at 0% at the September 24 meeting, and markets expect this ultra-low rate to last well into 2027, according to Reuters. This puts the franc among the most attractive funding currencies in the G10.
Rabobank analysts see the franc's low cost as both an opportunity and a risk. It's appealing for investors who want to borrow cheaply and invest elsewhere, but a sudden rush for safety could send the franc sharply higher, making it expensive to unwind those trades. The SNB's stance is supported by low inflation: headline inflation was 0.8% year-on-year in August, and core inflation was just 0.4%. With little pressure to tighten policy, the SNB is likely to stay put for now.
Franc's borrowing appeal grows
Switzerland's policy rate remains at zero, making the franc one of the cheapest major currencies to borrow. This role has long belonged to the Japanese yen, but with the Bank of Japan (BoJ) expected to raise its rate to 1.25% at the September 17-18 meeting and possibly to 1.75% by mid-2027, the picture is changing. These expected moves, reported by Reuters, strengthen the case for the franc as an alternative to the yen in global carry trades. The SNB's zero rate has held for over a year, and real interest rates in Switzerland are still among the lowest in the G10, adding to the franc's appeal for funding strategies.
But the franc's reputation as a safe haven complicates things. Low rates encourage borrowing, but the currency tends to strengthen during market stress, so investors risk sudden losses if sentiment turns. This isn't just theory-past episodes show that sharp franc moves can hit those who are short. Markets currently expect only about 50 basis points of SNB tightening by the end of 2027, and the 10-year real yield on Swiss government bonds is still negative. That makes the franc cheap to borrow, but also leaves it exposed if global risks flare up, as noted by Reuters and the SNB's latest statistics.
Exchange rate outlook and key data
Rabobank expects the US dollar to Swiss franc exchange rate (USDCHF) to stay mostly between 0.81 and 0.82 in the coming months. On Tuesday, USDCHF traded at 0.8181, near the top of that range. The 50-day simple moving average at 0.81 is seen as a support level, so there may be little room for further dollar gains unless new shocks appear. The SNB's cautious approach is backed by the latest inflation data and the lack of upward pressure on prices, matching the central bank's recent statements and market expectations.
Swiss inflation remains low, with headline inflation at 0.8% year-on-year in August and core inflation at 0.4%. These numbers give the SNB little reason to raise rates soon. Market pricing reflects this, with few expecting a policy change this year. Rabobank has also moved up its euro to Swiss franc (EURCHF) forecast, now seeing the pair at 0.95 within three months instead of nine. However, the upcoming French presidential election could renew demand for the franc as a safe asset.
Political and market risks
The franc's low borrowing cost is tempting, but political risk in the Eurozone remains a factor. Rabobank points to the French presidential election as a possible trigger for renewed franc strength, especially if investors look for shelter from euro volatility. This could limit any lasting weakness in the franc against both the euro and the dollar. The SNB's commitment to a zero rate policy, confirmed in its official releases, shows its focus on stability amid outside uncertainties.
Recent moves in other major currencies add to the complexity. For example, the British pound's performance against the New Zealand dollar has been affected by shifting policy expectations and economic data, as reported earlier. The franc's path will depend not just on Swiss policy, but also on how global investors react to changing risks and opportunities. The Bank of Japan's evolving stance, with board members like Kazuyuki Masu warning that the BoJ may need to hike rates quickly if inflation picks up, adds more uncertainty to the funding currency landscape.
Analysis
The Swiss franc's rise as a possible successor to the yen in global funding is more than a technical shift. Investors drawn by low Swiss rates have to weigh the risk that a safe haven surge could turn cheap borrowing into a costly problem. With inflation low and the SNB in no rush to tighten, the franc is attractive for funding, but the risks are real. The franc is no longer just a defensive asset-it's a live wire in the global currency system, and those who treat it as a risk-free source of cheap capital could be caught off guard by the next market shock.
When a currency becomes a popular funding vehicle, its role in global markets changes. The classic example is the yen carry trade, where investors borrowed yen at low rates to invest in higher-yielding assets abroad. This worked until sudden market stress forced a rapid unwinding, causing the yen to spike and losses for those who had borrowed cheaply. The Swiss franc now faces a similar situation: as long as rates stay low and global risk appetite holds, borrowing in francs may look attractive. But the franc's safe haven status means that any bout of market turbulence can trigger a sharp reversal, so investors need to understand not just the cost of borrowing, but the risks that come with the currency's global role.
