Hate the Swiss Franc, Love the Dollar in 2018? Take a Number

(Bloomberg) -- There’s a favorite currency trade emerging on Wall Street: a long dollar, short Swiss franc position for 2018.

Bank of America Corp., BNP Paribas SA and JPMorgan Chase & Co. are all touting a version of the strategy, based on the idea that the greenback will benefit from rising U.S. interest rates and tax cuts, while the Swiss National Bank maintains the lowest policy rate of any major central bank.

“Our G-10 FX directional trade of the year is higher USD/CHF,” David Woo, Bank of America’s head of global rates, FX and EM fixed-income strategy and economics, wrote in a note. “Balance of payments and continued policy divergence between the Fed and Swiss National Bank will likely drive the trade.”

BNP recommends going long dollar-Swiss with a target of 1.04 by mid year, anticipating an almost 5 percent gain for the greenback. It was little changed at 0.9922 francs per dollar as of 1:45 p.m. in New York.

“The market is underpricing the positive impact of higher U.S. cash rates and tax legislation on the USD,” said Daniel Katzive, head of FX strategy in North America at BNP Paribas. “A continued dovish Swiss National Bank outlook combined with declining euro-zone political risk premium should be consistent with continued CHF depreciation.”

The dollar’s one-year risk reversal against the franc, a barometer of positioning, sank to the lowest in more than 12 years last month, making it very cheap to buy insurance against a surging U.S. currency.

JPMorgan strategist Paul Meggyesi said the greenback will be supported by expectations of higher U.S. rates and tax cuts, or what he calls “Trumponomics Lite.”

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