Which currency is stronger
Will the franc soon be in demand again as a safe haven?
The Swiss franc has been fairly stable against the euro recently. Corona crisis and US presidential elections meanwhile are causing growing uncertainty. The Swiss currency could soon serve as a safe haven again.
After a turbulent spring, the exchange rate between the franc and the euro has changed little since June. In the summer months, the currency pair moved largely within the range of CHF 1,065 to CHF 1,085 per euro. In the spring, the outbreak of the coronavirus triggered a flight of investors into the Swiss franc, and this had come very close to the CHF 1.05 mark several times. According to the currency specialists at Bank J. Safra Sarasin, the fact that the franc then weakened somewhat against the euro is mainly due to the fact that Germany and France have agreed to create a billion-dollar EU Corona fund to support the economic recovery. The players in the financial markets rated the move positively, despite its questionable regulatory policy, as the EU thus demonstrated its ability to act in the crisis.
Coronavirus and US presidential election
There is now some evidence that in the near future the franc could again be in greater demand as a “safe haven”. The Swiss currency has already gained significantly against the dollar in recent months. The rising rates of infections with the coronavirus in many countries are causing uncertainty. In addition, the autumn and winter months are approaching when the pandemic could intensify further. This in turn could jeopardize the economic recovery, trigger market volatility and create risk aversion among investors.
Investors are also nervous about the outcome of the US presidential election on November 3rd. It cannot be ruled out that there is initially no winner, the election result is contested and political chaos ensues. Against this background, social unrest could again loom. Investing in Swiss franc investments also makes sense against the background that the Swiss economy held up comparatively well during the pandemic. Even if the risk that the US Treasury Department would classify Switzerland as a “currency manipulator” in October proves to be true, the franc could appreciate. Ultimately, this would potentially reduce the Swiss National Bank's leeway for interventions in favor of a weaker franc.
Be careful with foreign currency investments
For Swiss investors, this means that they should exercise caution when taking currency risks. In the past few decades, the Swiss franc has become significantly stronger against most other currencies. Anyone who has made their investments from Switzerland without hedging in other currencies has consequently lost money. Hedging currency risks, on the other hand, costs money and often eats up a large part of the income. In the case of equity investments in other countries, it is also often difficult to recover possible withholding taxes on interest or dividend income. A certain overweight in Swiss investments is therefore entirely justified for local private investors.
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