EUR & CHF: Correlations in Cash and Futures

Currency markets continue to witness the highly negative correlations between the EUR/USD and USD/CHF exchange rates (one goes up, the other nearly always goes down and vice versa). A product of the dollar’s similar rate of change vis-a-vis the euro and the Swiss franc, this relation has continued to hold much before and after the September 11 attacks, when the Swiss franc’s safe haven status was firmly re-established. More importantly, an almost perfectly inverse relation between the EUR/USD and USD/CHF does not necessarily imply a similar performance of the dollar against the franc and the euro. As we have identified in previous studies, it took the US dollar 37 days to recover all of its losses incurred against the euro after September 11, breaking even on October 19, 2001. But it took the US dollar 103 days to properly recover all of its post September 11 losses against the Swiss franc, starting to gain on December 24, 2001. This suggests that while the dollar’s behavior against both currencies may be similar in direction, it is far from different in magnitude. The differential in magnitude explains the time lag of the dollar’s behavior vs the franc behind that of its performance against the euro.