Safe Havens: Where Do Currency Traders Flock In Times Of Crisis?

This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investing advice.

In times of geopolitical stress, currency traders often flock to certain currencies they expect to retain or grow in value. 

Similar to how stock traders sometimes shift from growth movers like Airbnb Inc. ABNB and Upstart Holdings Inc. UPST to value movers like Bank of America Corp. BAC and Wells Fargo & Co. WFC during a stock market decline, currency traders will often abandon exotic currencies for the U.S. dollar, Japanese Yen and Swiss Franc. 

Given the Ukraine-Russian war and the recent decline of the stock market, many investors and traders are on the lookout for safe havens. Outside of currencies, several assets can serve as safety nets, namely gold, treasury bills, utility stocks and cash. 

Please be aware that past performance is not indicative of future results. 

What Defines A Safe-Haven Currency?

Safe-haven assets are those that retain their value during times of market turbulence, but how do traders identify these assets in the currency market? In other words, how does this definition extend onto currency, and what are the characteristics that keep currencies safe?

Because of currencies’ inextricable link to their respective nations, the perception of safety in any one currency often arises from the perceived stability of its government and economy. Take the Swiss franc, for example. At the beginning of the pandemic-induced shutdowns in the US in 2020, the dollar-to-franc (USD/CHF) currency pair started its descent from a March 16th high of 0.98527 to a low of 0.88281 on December 20th, 2020. This demonstrated the safety that was perceived in the Swiss franc.

Switzerland has a large, safe and stable banking industry, a low-profile capital market, virtually no unemployment, a high standard of living and positive trade balance figures. These achievements place the Swiss government – and the Swiss franc – on a pedestal of quality that readily prompts foreign demand in times of crisis.

The U.S. dollar and Japanese yen share the safe-haven designation for similar reasons. The U.S. dollar is the world’s reserve currency and the denomination for many international deals, and the U.S. economy is the largest in the world. Similarly, Japan has a positive net foreign asset position and has zero-to-negative interest rates on its yen.

An argument could be made for safe havens as self-fulfilling prophecies – in that they are regarded as safe havens because investors believe they’re safe-havens. 

FOREX.com – One Option For A Path To Your Chosen Safe Haven

“Generally speaking, safe haven currencies offer geopolitical stability along with sound fiscal and monetary policy,” says Matt Weller, CFA, CMT, Global Head of Research at FOREX.com.

“They often offer relatively low interest rates and can therefore benefit from traders unwinding carry trades in times of turmoil.”

Whether you’re a Canadian or U.S.-based trader, FOREX.com states that it looks to spread this knowledge and provide traders easy access to safe-haven currencies directly through its platform.

Once you’ve decided which currency best serves you as a safe haven, FOREX.com provides a platform and direct-access route to whichever one you choose. Trade the USD/CHF or USD/JPY pairs in a market that is available 24 hours a day, five days a week and use the broker’s leverage features to improve your trading potential. 

FOREX.com serves both American and Canadian customers. 

Click here to learn more. 

This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investing advice.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

Photo by michiele on Unsplash

Posted In: Forex.comPartner ContentForexMarkets