Investors have been looking for safe-haven assets this year and that includes safe-haven currencies. That trend explains why the CurrencyShares Swiss Franc Trust (NYSEArca: FXF) is up nearly 2.3% over the past month.
In news that is sure to draw the ire of the Swiss National Bank (SNB), which has actively sought to weaken the franc, the Swiss currency is one of the best performers among developed market currencies this year. In December 2014, the SNB became one of the first developed market central banks to implement negative interest rates.
Also in 2014, Swiss voters rejected a plan to boost SNB’s gold reserves to 20% from 7% and the country dropped the gold standard in 1999, but some traders still perceive gold and the franc as having strong ties. Early last year, SNB said it was scrapping the franc’s peg to the euro, a move that sent the Swiss currency soaring. [A Strong Franc Hampers Swiss ETFs]
“The franc posted its biggest gain since August against the euro as concern that the U.K. may exit the European Union dragged down the pound and with it the 19-nation shared currency. China’s decision to cut its daily yuan fixing by the most in six weeks also spurred demand for the safest assets. The franc jumped against all of its Group-of-10 counterparts, reaching the strongest level since January versus the euro,” reports Bloomberg.
International investors have traditionally turned to these safe-haven currencies during times of market turmoil because of the countries’ historically low interest rates, along with their stable government and financial systems.
The stronger franc will weigh on exporters like Nestle, along with other small- and mid-sized companies with factories in Switzerland where workers earn some of the highest wages in Europe.
The franc “slid in the second half of 2015 even as China’s slowing economy, collapsing commodity prices and stock markets fueled concern that the global economy was slowing, suggesting the Swiss currency was no longer regarded as a source of refuge from turmoil,” according to Bloomberg.
CurrencyShares Swiss Franc Trust
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.