What's Up: Swiss franc to continue strength in the medium term so long as euro-zone crisis remains, traders said.
Swiss franc proves a reliable port in a storm
The Swiss franc may have retreated from its record high on Monday against most major currencies, but currency strategists say the "shockingly expensive" franc may still appreciate because it is regarded as a haven.
Recent gains for the currency have come amid turmoil in the euro-zone debt markets as investors seek hedges. "Unless Harry Potter waves his magic wand, I don't think we can make the euro-zone crisis completely go away, and there is a significant risk that the Swiss franc will remain very strong," said Kit Juckes, a currency strategist at Societe Generale in London.
It is the best performing currency against nine developed market peers in the past year, rising 17 per cent, according to Bloomberg News. Having struck a record of 1.1374 against the euro and 0.8033 versus the dollar on Monday, however, the franc slipped after suggestions it was now overbought and could reverse course.
The franc yesterday fell 0.5 per cent against the euro to trade at 1.1594 and down 0.6 per cent against the dollar at 0.8225.
The greenback's early weakness was driven by continued worries over euro-zone sovereign debt after Moody's Investors Service put the US on review for a possible downgrade if legislators did not agree to raise the country's debt ceiling. Switzerland is still the number one destination when it comes to private banking for Middle East assets, especially for Saudi investors, according to Booz & Company, a global management consultancy.
Mr Juckes said that trend was unlikely to change any time soon.
"The desire to keep funds in Swiss banks has not diminished at all for 'Gulfies'," he said. "Most investors hold accounts in Switzerland and hire a fund manager to buy assets globally. This year the trend is more of 'I don't want euro or dollar-denominated assets … I could buy other Swiss-denominated assets.'"
Foreign exchange traders at Standard Chartered took a similar line. "The strength in the Swiss franc is driven by safe haven demand during times of uncertainty and exacerbated by the events in Europe and the US," said Mazen Barbir in Dubai. "The currency remains in demand as uncertainty prevails."