Battle Over Havens Sees Yen Face Swiss Franc on Russia Tensions
(Bloomberg) --
There's a battle in the currency market for a haven of choice to shelter from tensions between Russia and the West over Ukraine.
The Japanese yen and Swiss franc, both traditionally seen as safe in the $6.6 trillion-a-day currency market, have gained in the past two weeks since fears of a conflict in Ukraine escalated.
In the spot market, the franc is winning, trading close to its highest level versus the yen since 2015. However, for options traders, the Japanese currency is pulling in the haven flows.
The premium to buy options that pay out should the yen gain against its major peers has climbed. In bets against the franc over the next month, it's the widest since April 2020.
This unusual divergence between the spot and options markets may be down to relatively low volatility in currencies overall. Realized volatility in the franc-yen pair over the past month stands at 50 basis points below its past-year average.
That enables other factors at play. Investors, looking for the Swiss National Bank to let the franc gain to tame imported inflationary pressures, may be willing to hold a long cash franc exposure until geopolitical concerns mount further.
- NOTE: Vassilis Karamanis is an FX and rates strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice
©2022 Bloomberg L.P.
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