FX Daily: Low yielders set to remain under pressure
The desk observes ongoing weakness in defensive currencies, specifically the Japanese yen and Swiss franc, as higher energy prices and maintained interest rates persist. Per the full note source, the USD/JPY and USD/CHF pairs are forecasted to remain supported amidst a resilient equity market driven by optimism surrounding AI investments. With broad expectations that the BoJ and SNB will not adjust monetary policy aggressively, traders are increasingly likely to favor higher-yielding currencies like the dollar and krone.
What the desk is arguing
The desk posits that low-yielding currencies such as the JPY and CHF will remain under pressure due to heightened energy prices and a lack of aggressive central bank action. Furthermore, the Japanese yen remains particularly vulnerable as USD/JPY may continue to trend towards the 164/165 area ahead of the upcoming BoJ meeting on July 31. This aligns with the prevailing risk-on sentiment in global markets.
Supporting this, the commentary notes that demand for USD/JPY and USD/CHF is expected as investors seek currencies that offer yield amidst rising energy prices. Currently, traders are gravitating towards the dollar and Norwegian krone, positioning themselves away from the defensive low-yielding currencies exemplified by the JPY and CHF.
Where it sits in our coverage
Our consensus target for USD/JPY is currently 149.00 for December 2026, with a range of firm targets showing variability: goldman at 165.00, citi at 163.00, and jpmorgan at 164.00.
This viewpoint of a sustained bearish trend on low-yielders matches well with the overall cross-firm sentiment. Notably, our consensus aligns at the lower end of the firm spread for USD/JPY, highlighting expectations of softening demand for the JPY in the medium term.
How other firms see it
Firms aligned with this bearish view on low-yielders include goldman and citi, both projecting a weaker JPY future. In contrast, bofa expresses a slightly more optimistic stance with targets close to the lower bounds of our consensus.
It is pertinent to watch how the USD/CHF trajectory may correlate with SNB policy expectations. Alongside the influences in USD/JPY, these currencies are increasingly interlinked through their shared themes of low yield and central bank caution.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Defensive currencies like JPY and CHF are under pressure.
- 02USD/JPY expected to test 164/165 ahead of the BoJ meeting.
- 03Strong risk appetite in equities supports USD and NOK.
- 04Low yielders remain unattractive amidst higher energy prices.
Market implications
Traders should monitor the USD/JPY level around 165, as a breakthrough could reinforce bullish momentum. Additionally, keep an eye on BoJ commentary before their July 31 policy meeting, which might catalyze further moves in these currencies.
Risks to this view
A surprise shift from the BoJ or SNB towards more hawkish monetary policy could significantly alter current market dynamics and bolster both the yen and franc. Additionally, any abrupt downturn in global equities could induce risk aversion, prompting a flight to safety and negatively impacting the USD/JPY and USD/CHF pairs.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Neutral | 1.1450 |
MUFG | Bullish | 1.1800 |
Bank of America | Bullish | 1.1500 |
Articles FX Daily: Low yielders set to remain under pressure Published 07:47 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The defensive currencies – the Japanese yen and the Swiss franc – remain soft. That may be because equity markets remain reasonably bid despite the rise in energy prices. But a far more important factor appears to be low interest rates and central banks that will be slow to hike.
Expect USD/JPY and USD/CHF to stay bid during this period of high energy prices Chris Turner , Frantisek Taborsky and Francesco Pesole High oil and high equity prices look set to keep USD/JPY and USD/CHF supported USD: No respite from higher energy prices The global investment environment can be characterised as one in which risk appetite remains reasonably strong, even as higher energy prices drive interest rates to new highs. The former is heavily predicated on the AI-investment boom continuing to deliver on its promise of future earnings. That thesis remains intact for the time being, and Alphabet's release of Q2 earnings after the bell today will provide fresh insights.
Given the quiet summer markets (the global calendar is exceptionally light today), investors continue to gravitate towards currencies that will deliver yield as well as offer some protection against even higher energy prices should the conflict broaden further in the Gulf. The dollar and the Norwegian krone remain the go-to currencies here, while the defensive low-yielders like the yen and Swiss franc remain offered. On the yen, the Bank of Japan's decision not to intervene during the recent public holiday has emboldened the market to take USD/JPY a little higher.
This could grind towards the 164/165 area into next week ahead of the BoJ policy meeting on 31 July. But USD/CHF rather than USD/JPY could become an increasingly popular vehicle for these summer months; the Swiss National Bank is not going to surprise with $70bn of FX intervention (as the BoJ did in April/May). In fact, the SNB probably welcomes this weaker Swiss franc.
Here, it looks to be one of the last central banks to hike. And higher energy prices and higher rates in general deliver wider interest rate differentials against Swiss rates. We have been discussing a higher USD/CHF over recent weeks, and if energy prices have another leg higher, USD/CHF could deliver some powerful follow-through on a break of 0.8150/70 resistance.
DXY should stay supported in the middle of its 100.35 to 101.80 range, and we would continue to favour the upside over the short/near term. Chris Turner EUR: Clinging on EUR/USD has been performing relatively well despite the rebound in energy prices that has seen natural gas prices retesting the March highs of EUR60/MWh. Interest rate differentials have probably had a say here, with higher oil prices seeing investors price a more aggressive tightening response from the European Central Bank than the Federal Reserve.
Sources & References
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