Swiss Franc: The Gold Little Brother

If it gets riskier on the world stage, investors flee into gold – or into the Swiss franc. It is regarded as the “safe haven” par excellence.

Parliamentary elections were held in Switzerland on Sunday. However, the election results had hardly any impact on the performance of the Swiss franc. One euro was worth around 1.10 francs on both the Friday before the election and the Monday after the election. The Swiss People’s Party (SVP) emerged as the clear winner of the election, but performed worse than four years ago. The Greens recorded the largest increase. Nevertheless, the party did not make it into the state government.

 

Like gold, the franc is a crisis indicator

Once again it has become apparent that domestic political developments often have less of an impact on the currency of the Alpine country than trends on the international capital markets. For years, the Swiss franc has been relatively strong against other currencies. Like gold, it is considered a crisis indicator and “safe haven” in bad times. Investors regularly flee into the Swiss currency, enjoy the stability of the independent state and thus massively appreciate the franc.

The Swiss central bankers do not like this at all. They have been trying to weaken the franc for years. However, the long-term course of the exchange rate shows that if danger arises, the franc immediately rises again.

 

The franc has recently depreciated

The chances that the trade dispute between the USA and China will be resolved and the easing of tensions surrounding the Brexit issue have caused the franc to depreciate over the past 14 days. Investors are therefore once again moving into riskier forms of investment. The same picture emerges for gold.

However, the Swiss central bank should continue to have a hard time. For many of the current crises there is no quick solution in sight. According to the Graubündner Kantonalbank, the Swiss franc should remain popular with investors in the coming months.