The Swiss franc is generally called the ‘strongest currency on Earth’ along with the Kuwaiti dinar. The franc hit an 11-year high against the US dollar after rising 3.5% in the charts year-to-date. The currency is viewed as a safe-haven asset, and investors flock to it during geopolitical or macroeconomic uncertainty.
The global financial uncertainty, stemming from Trump’s erratic trade policies, is aiding the franc currency. “Further escalation, geopolitically, means more uncertainty,” Swiss National Bank Chairman Martin Schlegel told CNBC’s Karen Tso during the World Economic Forum in Davos.
In addition, the world’s strongest currency, the franc, has also risen 12% against the US dollar in a year. The US dollar is battling sluggishness in the charts, falling to a low of 95 this week. The DXY index is unable to rebound and reclaim its lost turf of 110. Other currencies are walking all over the weak USD
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World’s Strongest Currency Creates Trouble in Switzerland
However, Switzerland’s local currency rise is no good news for its central bank as it complicates monetary policies. “It’s not good for the Swiss franc or for Switzerland, because the Swiss franc is a safe haven. Whenever there is uncertainty in the world, the Swiss franc appreciates, and this makes monetary policy more complicated for the Swiss National Bank,” said Schlegel.
The only way for the central bank to cool the franc is to offload its currency and buy foreign currencies. However, doing this is risky as Switzerland secured a trade deal to reduce the 39% tariffs. However, Switzerland’s exports are keeping the currency on top with quality products shipped around the world.
“The Swiss franc remains strong in part because demand for many Swiss exports is relatively price-inelastic,” Giuliano Bianchi, Co-Founder, Quantitas Institute, EHL Hospitality Business School, told CNBC. While the currency is steadily rising against the US dollar, the central bank seems worried.