The concept of safe-haven currencies has been shaken up in the past year, leaving investors questioning their reliability. Let's dive into the changing landscape of the Swiss franc, US dollar, and Japanese yen, and explore why these once-trusted currencies are facing new challenges.
The Myth of Safe Havens?
Ask any investor about safe-haven currencies, and the US dollar, Swiss franc, and Japanese yen will likely top the list. Traditionally, these currencies were seen as stable anchors during turbulent times, whether geopolitical or economic.
However, recent volatility has called this perception into question. Both the dollar and yen have experienced significant declines since 2025, while the Swiss franc has strengthened, creating its own set of challenges for the country.
The Declining Dollar: A Victim of Trade Wars?
US President Donald Trump's trade policies, particularly the imposition of tariffs in 2025, sparked a "sell America" trade, leading to a sell-off of US assets, including the dollar. The world's reserve currency faced pressure due to the unpredictability of these trade policies, with investors questioning the sustainability of the US's debt trajectory under Trump's "One Big Beautiful Bill Act".
Trump's influence on the Federal Reserve and his public statements about the dollar further eroded investor confidence. The dollar index tumbled, reaching its lowest level in almost four years. George Saravelos, head of FX research at Deutsche Bank, even went so far as to call the dollar's safe-haven status a "myth", challenging the notion that it rallies during risk-aversion.
Cole Smead, CEO of Smead Capital Management, predicts further weakness for the dollar, citing historical precedents like the telecom and tech bubbles of the late 1990s. The US dollar index's nosedive of around 41% between 2002 and 2008 is a stark reminder of the dollar's vulnerability.
The Yieldless Yen: Intervention Rumors Swirl
The Japanese yen has been on a seesaw ride in 2025, with intervention rumors adding to the currency's volatility. At the start of the year, the yen was worth around 156 against the dollar, strengthening as the Bank of Japan signaled rate hikes. However, it weakened sharply after October when Prime Minister Sanae Takaichi's expansionary fiscal policy prompted a sell-off, pushing up long-term yields on Japanese government bonds.
The yen has declined by 5.9% since Takaichi's accession, but it has shown signs of strengthening again after the Liberal Democratic Party's landslide victory in the Lower House election. Citi analysts believe the yen is unlikely to weaken beyond the 160 level, which could prompt intervention by Japanese or US authorities. ING predicts a struggle between the market and authorities near the 159 mark.
The Faltering Franc: A Small Country's Big Challenges
Unlike the dollar and yen, the Swiss franc's home country, Switzerland, is a small nation with political stability, low debt, and a diversified economy, making it a safe-haven asset. The hunt for stable assets over the last year has benefited the franc, which has held its value more clearly than either the dollar or the yen.
Over 2025, the franc gained almost 13% against the US dollar, extending those gains into 2026 and hitting an 11-year high against the greenback. However, this strength is causing problems in Switzerland, as an unusually low inflation rate of 0.1% and a 0% key interest rate complicate the Swiss National Bank's (SNB) monetary policy picture.
Switzerland is battling sluggish price growth, and a strengthening franc could add further disinflationary pressure to its export-driven economy. The SNB has previously intervened in the foreign exchange market to cool the franc, but doing so now carries risks, especially with the Trump administration taking issue with the SNB's interventions.
SNB Chairman Martin Schlegel stated that the bank is "ready to intervene in the FX market if necessary", but economists at UBS forecast the franc to lose around 2% against the dollar by the end of the year, suggesting the SNB may not react forcefully.
Matthew Ryan, head of market strategy at Ebury, believes the Swiss franc has "solidified itself as the premier safe-haven currency of choice", while Lee Hardman, a currency analyst for MUFG, agrees that political turbulence has undermined the safe-haven appeal of both the yen and the dollar.
So, what do you think? Are safe-haven currencies still a reliable investment strategy? Or has the changing economic landscape rendered this concept obsolete? We'd love to hear your thoughts in the comments below!
