Investors are moving into the Swiss franc, widely seen as a premier safe-haven asset, as an alternative to the U.S. dollar. Following an unusual joint intervention in currency markets by the United States and Japan, U.S. Treasury Secretary Scott Bessent announced plans to double the government's Treasury buyback program to $4 billion. The move made Washington's interventionist stance all the more evident.
The Swiss franc surged 1.39% against the U.S. dollar over the three days from the 18th to the 21st, according to Bloomberg data released on the 23rd. That was the largest gain among the six major currencies that make up the U.S. Dollar Index (DXY) — the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc. Over the same period, the euro rose 0.89% and the Japanese yen gained just 0.42%.
The DXY, by contrast, has weakened. After trading around 99.6 on the 18th, the index fell to about 98.8 following the Treasury's buyback announcement on the 19th. The starting point was the visible move by authorities to artificially suppress a rise in Treasury yields. Analysts say the market is now pricing in a "risk premium" through a decline in the dollar's value.
Robin Brooks, a senior fellow at the Brookings Institution, wrote on his blog that the expanded buyback is "the clearest sign yet that the U.S., like Japan, is going down the path of currency debasement." He argued that when fiscal policy spirals out of control, a government may make various attempts to hold down Treasury yields, but this ultimately prevents the market from receiving the risk premium it demands, adding to downward pressure on the currency.
The franc's move is also borne out in the data. According to Forex.com, the research platform of global financial services firm StoneX, the Swiss franc — which had shown a positive correlation with U.S. Treasuries — has shifted sharply into negative territory over the past five days. Its positive correlation with volatility gauges such as VIX futures, meanwhile, has strengthened rapidly. That suggests investors who had held both U.S. Treasuries and the Swiss franc as safe-haven assets are now shunning riskier assets and choosing the latter.
The franc's appeal stems from Switzerland's sound public finances. The country's net international investment position (NIIP) reached about 111% of gross domestic product (GDP) last year, compared with about -71% of GDP for the United States. In March, Fitch, one of the world's three major credit rating agencies, kept Switzerland's rating at the top grade of "AAA," noting that its government debt is "among the lowest of similarly rated countries." In 2023, Fitch cut the U.S. rating to "AA+" from "AAA," citing a deterioration in public finances.
"Swiss Franc Seen Rising if AI Bubble Bursts"
Against this backdrop, some analysts predict the Swiss franc will strengthen if a sell-off in AI stocks emerges. The franc is being offered as an alternative to two of the U.S. economy's weak links — the budget deficit and volatility in technology stocks.
Harry Chambers, an economist at Capital Economics, forecast that an AI bubble would burst next year, according to The Wall Street Journal on the 20th, local time. Chambers said the resulting increase in demand for safe-haven assets "is likely to lead to the Swiss franc strengthening against the euro."
Chambers cited the dot-com bubble, when the Swiss franc strengthened 3.5% against the euro, as a case similar to the current situation. He added that he expects the franc, which has held at around 0.94 per euro this year, to strengthen about 3% by the end of 2027.
Still, the Swiss government's feelings about a stronger franc are mixed. Martin Schlegel, chairman of the Swiss National Bank (SNB), noted in January that the value of the Swiss franc rises whenever global uncertainty grows, which he said is a factor that complicates the central bank's monetary policy. Switzerland's inflation rate is at its lowest since 2008, raising concerns about deflation. A rising currency on top of that could force the SNB to reintroduce a negative interest rate policy.
