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The Swiss Franc (SFR) has long been considered a currency for institutional investors to buy when they need to get out of riskier assets, particularly during times of financial crisis. Heavy buying of the Swiss franc will happen at times of stress, when investor confidence in other assets like shares or commodities is ebbing.

Switzerland has traditionally been regarded as a conservative and neutral country where it is safe to keep your money, hence the success of its private banking industry. Switzerland has also steered clear of EU membership and the eurozone. It is this neutrality policy of the country’s successive governments that have led its currency to be favoured by investors.

The Swiss franc was backed by gold reserves to the tune of 40%, a legal requirement laid down by the Swiss government, but this was abandoned in 2000 following a referendum. In recent years it has traded very closely to the euro, maintaining a rate of approximately 1.55 to the euro. Switzerland remains heavily influenced by the economic fortunes of the Eurozone, as it is surrounded by Eurozone countries and counts the EU as its primary trading partner.

The Swiss franc will tend to rally at times of political turbulence, not just when there are financial problems. Look for it to gain strength against other major currencies when there is increasing political instability on a global scale. It is not particularly popular amongst central banks, and has rarely accounted for more than 0.3% of global foreign exchange reserves in the last 20 years.

The Swiss franc is more popular with private investors than central banks, who still make use of bank accounts denominated in the currency, even though the macroeconomic case for holding Swiss francs is less powerful than it was in the late 1990s.

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Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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