Explore Topics and Trends impacting today's markets

Safe haven currencies can be an important component in a global investors' toolbox, particularly during periods of high market volatility or geopolitical uncertainty. Investors often use them to mitigate risk and preserve capital during "risk-off" periods, when there is less appetite for investments that typically carry more risk.

Understanding the role of these currencies, the reasons they are considered safe havens and their behavior during turbulent times is crucial for managing investment risk effectively.

Investors expect a safe haven currency to retain or increase in value during times of market turmoil, making it a desirable option for those opposed to risk. Key characteristics of a safe haven currency include:

Political Stability: Countries with stable political systems are less likely to experience economic volatility, making their currencies more attractive during uncertain times.

Economic Strength: Economies that are large, resilient and diversified can better withstand global economic shocks, supporting the strength of their currency.

Financial Depth: Currencies of countries with deep and liquid financial markets tend to be preferred as safe havens because they allow investors to enter and exit large positions without significantly affecting the currency's value.

Low Inflation Rate: A stable and relatively low inflation environment contributes to a currency's purchasing power, enhancing its safe haven appeal.

Traditional Safe Haven Currencies

U.S. Dollar (USD): The USD is the world's reserve currency held by most central banks and institutions as part of their foreign exchange reserves. The U.S.'s dominant economic position and the widespread use of its currency in global trade make the USD a preferred safe haven.

Swiss Franc (CHF): Switzerland's long standing policy of political neutrality and fiscal prudence contribute to its status as a safe haven. Moreover, the Swiss National Bank's (SNB) commitment to maintaining currency stability attracts safe haven investments.

Japanese Yen (JPY): Japan's large economy and financial market liquidity make it a safe haven despite its high public debt levels. Some may argue against the idea that Japan has robust economic fundamentals, but the yen benefits from Japan's current account surplus, which provides support during economic downturns.

A Balanced Portfolio

During periods of high uncertainty, such as financial crises, geopolitical conflicts or economic downturns, investors tend to shift assets toward safe haven currencies. This shift is driven by a strategy to reduce exposure to potential losses in investments that can carry more risk like stocks or emerging market currencies.

By including safe haven currencies in a portfolio, investors can diversify their holdings, thereby spreading risk and potentially reducing overall portfolio volatility. Investors holding assets in higher risk currencies may buy safe haven currencies to hedge against potential losses. This strategy is a favorite of multinational corporations and global investors who need to manage currency exposure across different markets. 

Many investors' primary goal in times of crisis is to preserve capital. With their stability and reliability, safe-haven currencies can provide shelter for capital, potentially maintaining value when other assets may be declining.

The demand for safe haven currencies typically increases during risk-off periods, leading to appreciation against other currencies. When investors seek liquidity and safety, the simultaneous sell-off in higher risk assets and currencies can drive this appreciation. 

However, the role of safe haven currencies is not static and can be influenced by global economic conditions and central bank policies. For instance, intervention by central banks through quantitative easing, currency buying or changes in interest rates can affect a currency's perceived safety and attractiveness. By understanding the characteristics that make these currencies safe havens and how they can be utilized in risk management strategies, investors can better navigate periods of uncertainty and volatility in global markets.



OpenMarkets is an online magazine and blog focused on global markets and economic trends. It combines feature articles, news briefs and videos with contributions from leaders in business, finance and economics in an interactive forum designed to foster conversation around the issues and ideas shaping our industry.

All examples are hypothetical interpretations of situations and are used for explanation purposes only. The views expressed in OpenMarkets articles reflect solely those of their respective authors and not necessarily those of CME Group or its affiliated institutions. OpenMarkets and the information herein should not be considered investment advice or the results of actual market experience. Neither futures trading nor swaps trading are suitable for all investors, and each involves the risk of loss. Swaps trading should only be undertaken by investors who are Eligible Contract Participants (ECPs) within the meaning of Section 1a(18) of the Commodity Exchange Act. Futures and swaps each are leveraged investments and, because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for either a futures or swaps position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles and only a portion of those funds should be devoted to any one trade because traders cannot expect to profit on every trade. BrokerTec Americas LLC (“BAL”) is a registered broker-dealer with the U.S. Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (www.FINRA.org), and is a member of the Securities Investor Protection Corporation (www.SIPC.org). BAL does not provide services to private or retail customers.. In the United Kingdom, BrokerTec Europe Limited is authorised and regulated by the Financial Conduct Authority. CME Amsterdam B.V. is regulated in the Netherlands by the Dutch Authority for the Financial Markets (AFM) (www.AFM.nl). CME Investment Firm B.V. is also incorporated in the Netherlands and regulated by the Dutch Authority for the Financial Markets (AFM), as well as the Central Bank of the Netherlands (DNB).

©2024 CME Group Inc. All rights reserved