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.