The Swiss franc, along with Swiss banks, is taking a beating this morning.
In fact, RBC Capital Markets contend the currency is rapidly losing its safe haven status and decoupling from the US dollar.
To wit, this chart from RBC, showing all the possible permutations of G10 currency pairs’ (USD/EUR, JPY/USD, etc.) correlations with the S&P since October.
CHF against the USD, you’ll notice, is on the small side.
As we have noted before, USD/CHF is one of only a tiny group of currency pairs (seven of 45 possible) that has not been statistically significantly correlated with stocks in recent months. Implicitly, USD and CHF have been trading in equal measure as safe havens, both rallying when stocks fall and vice versa. However, so long as Eastern European exposure remains on the markets’ radar, CHF’s safe haven status will be called into question and CHF is likely to break away from USD, driving up the correlation in Figure 2 to more “normal” levels. Indeed, hourly data show the (negative) correlation between USD/CHF and stocks beginning to rise sharply in recent sessions, supporting the notion that USD remains a safe haven while CHF is beginning to trade as a riskier asset.
Related links:
Domino theory, Eastern Europe edition – FT Alphaville
Swiss banking will adapt in order to survive – FT