Political stability, sound fiscal and monetary policy and the resulting steady macro-economy make the CHF the quintessential safe-haven currency to which international investors return in times of crisis. The safe-haven nature of the CHF poses a challenge for the Swiss economy as the CHF tends to appreciate whenever a global crisis looms. This trend has been less pronounced lately with key events such as the triggering of Article 50 and even the election of Donald Trump failing to spark the rally some might have hoped in the Franc.
Switzerland can be considered as a stable and safe country. The same accounts for its currency, the Swiss Franc (CHF). The currency is often referred to as the safe-haven currency, as it is a backup for investors during times of geopolitical tensions or uncertainty. The safe-haven currency is a leftover from the Cold War. Nevertheless, more recently during the aftermath of the Global Financial Crisis and the Eurozone debt crisis of 2009-2010, the name once again proved itself. The Swiss Franc emerged again as a safer alternative to other major currencies, such as the USD, EUR, JPY and GBP, which are all involved in high debt levels and negative economic outlooks.
The Swiss franc continues to be seen as a safe haven investment despite a recent depreciation but pressure on the currency is still there, Swiss National Bank governing board member Andrea Maechler stated in an event in Zurich. The pressure on the Swiss franc is still there, the currency has devalued and the overvaluation has reduced, but the franc is still a safe haven, she said. SNB alternate governing board member Dewet Moser said the central bank stood ready to take action if the franc started to rise again. “We know from the experience of the past years that the market situation can suddenly change”.
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Currency markets are notoriously volatile but certain currencies adopt certain areas of the spectrum owing to the relative safety and security both politically and economically of the region they represent. The Franc remains a haven as part of investor’s portfolio and the scope for it to continue to behave as a safe haven remains. However with some recent events failing to spark any significant CHF strength the potential for this currency to behave less and less like it used to be strong.
Although the CHF has less liquidity than the EUR or the GBP, it is still an easy currency to trade. International political and economic instability is the factor that most likely can cause large movements in the value of the CHF. When international turmoil increases, investors will flee to the perceived safety of the CHF. Nevertheless, the factor of political and economic instability also accounts for the USD, which is also seen as a safe haven during difficult times. Thus, it may be difficult to determine which currency will be the preferred source of safety. As every crisis is different, an informed decision should be made between the CHF and the USD as a preferred option for investors seeking safety.