Negative interest rates and the Swiss franc

[Shadow Trader]

For years, Switzerland ran a negative policy rate. Banks paid to hold reserves at the central bank, and holders of Swiss franc deposits could face charges.

The effect on currency behaviour was notable. The franc remained a safe haven, but investors borrowed in francs to fund higher yielding assets, much like the yen. When risk appetite fell, those positions closed, and the franc surged.

For forex scalpers, the lesson goes beyond Switzerland. Interest rate regimes shape the character of a currency. A low-rate currency is a funding source, vulnerable to sharp rallies in stress. A high-rate currency attracts carry flows and can fall abruptly when risk turns.

Understanding where each major sits in the rate cycle helps interpret behaviour that seems unexplained on the chart.

A one-line note beside each major currency in the trading plan, stating whether it is a funder or a recipient, takes five minutes to write.

Does the rate regime play a role in pair selection here?

[Amanhasnoname]

I got caught by exactly this dynamic on a quiet afternoon a few years back, short CHFJPY on what I thought was a clean technical setup. A risk-off headline hit equities and both currencies caught a bid, but the franc much harder than I expected. The lesson stuck: two funding currencies against each other behave strangely when stress shows up, because you never know which unwind is bigger.

I don't keep a formal funder or recipient tag, but I do keep a short note on each pair about how it tends to behave on risk-off days. AUDJPY and NZDJPY are flagged as pairs I avoid when equity futures are falling hard during my session, since the moves can be one-way and fast.

Rate regime does influence my pair choice, though more for holding time than direction. On pairs with a big carry gap I'm more willing to sit in a trade on the carry-favoured side, and quicker to scratch when I'm fighting it. It's a small tilt, not a system, but it helped.