After a wave of scepticism washed over global stock markets at the beginning of this week, the Swiss franc has risen to values unseen for nearly a decade. The national currency is seen as a "safe haven" bet among investors, especially in times of financial instability and crisis.

Value of Swiss franc skyrockets amid market uncertainty

On August 6, the Swiss franc's value against the euro rose to a near 10-year high, increasing at a rate unseen since the Russian invasion of Ukraine in 2022. On Tuesday, the value of the European currency fell to 0,95 rappen (cents). What’s more, experts speaking to Swissinfo have predicted that the Swiss currency will continue to get more valuable as the year progresses.

The sudden increase in value is said to have come about following several shocks to global stock markets. This began on August 2, when the Bureau of Labor Statistics in the United States released a report indicating that the number of new jobs in the world’s largest economy had begun to slow and that the unemployment rate had risen.

This, combined with concerns of a global recession, ongoing geopolitical tensions and what was described as a "market correction" in the tech industry, led to massive sell-offs across the world. On August 5, the DOW Jones lost 2,6 percent of its value, the tech-heavy Nasdaq lost 6 percent and the Japanese exchange Nikkei 225 dropped by 12,4 percent. 

While the markets did start to recover by the end of the week, the fear of instability led many to purchase Swiss francs, hence why its value has increased so quickly. According to Swissinfo, the increase has been so extreme that on Wednesday a large group of local manufacturers and international companies petitioned the Swiss National Bank (SNB) to act to stop the franc from strengthening further, for fear of hurting exports and endangering the economy.

Why do people buy Swiss francs in times of crisis?

Switzerland and its currency are often seen as a “safe haven” investment in times of global instability. During times of uncertainty, banks, entrepreneurs and investors rush to purchase francs, which are considered to be predictable, stable, and offer reliable (albeit lower) returns during periods of crisis. This is attributed to a combination of the strength of the Swiss economy, the stability of the government and the country's policy of neutrality.

This reputation has been thrown into sharp relief in the past few years. At the height of European inflation in 2022, for example, commentators noted that the franc was “worth its weight in gold” as a counter against rising costs across the continent.

What impact does a strong Swiss franc have?

The impact of a more valuable Swiss franc is a double-edged sword. While families and individuals with salaries paid in francs will be able to get more value for money when travelling or buying items from abroad, products and services from Switzerland will become more expensive for those outside the country, hurting local firms. 

Switzerland will still see its currency's valuation rise

Even though the SNB is expected to cut interest rates in Switzerland to 0,75 percent by December - making returns less lucrative - political uncertainties and inflation still mean that the franc is a good safety bet. “I don’t see any clear sign that the franc’s gains are done yet,” noted Bank of New York Mellon senior strategist Geoff Yu.

Speaking to Swissinfo, fellow at the Institute of Swiss Economic Policy in Lucerne Adriel Jost said that he “wouldn’t say that the franc is overvalued yet,” arguing that the recent rise was more a “normalisation” than a temporary increase. He said that with inflation rates in Switzerland still much lower than in the rest of Europe, people in Switzerland may soon be able to get 1,1 euros per franc in the future.

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