The Swiss Franc is exhibiting a split personality: strengthening against the dollar and euro as a haven for US equity outflows, while simultaneously underperforming high-beta currencies like the Aussie and Norwegian Krone amid a strong global growth backdrop. This dichotomy requires a nuanced trading strategy.
Despite a surprisingly strong US payrolls report that should have supported the dollar by pushing back Fed rate cut expectations, the currency faded quickly. This counterintuitive reaction suggests the market has an asymmetric view, where strong labor data no longer provides a meaningful lift to the dollar.
The classic "stocks down, dollar up" correlation is weakening. A J.P. Morgan model shows that relative US equity underperformance (dollar-negative) is currently offsetting the effect of an outright global equity decline (dollar-positive). This dynamic leads to only modest moves in the dollar despite stock market stress.
The market has rapidly embraced a "buy Japan" narrative, pushing the yen higher on speculation of greater fiscal restraint. However, the administration remains committed to expansionary policy, and the central bank's stance is unchanged. This suggests the recent yen rally is a speculative overreaction that has "jumped the gun" ahead of concrete policy details.
A significant divergence in monetary policy is emerging in Scandinavia. Norges Bank (Norway) now likely wants a stronger currency to combat inflation, while the Riksbank (Sweden) has been actively pushing back against currency strength. This creates a compelling "Noki/Stocky" pair trade opportunity, separate from broader market trends.
Recent US Treasury actions, including unusually direct language in its currency report calling for Chinese Yuan appreciation and citing specific tariff threats, indicate a shift toward a more interventionist FX policy. This move away from a hands-off approach suggests the US may become a more active source of bilateral currency volatility.