What are the recognized safe-haven currencies in the foreign exchange market and why?

Avoidance currencies, also called value-preserving currencies, refer to currencies that are not easily affected by politics, war, market fluctuations, etc., and that maximize the avoidance of the above risks, are more stable, and are not easily devalued.

Hedge currencies can avoid the risk of devaluation to the maximum extent possible, but does not mean that absolutely will not be devalued, the market price of any currency will fluctuate. The recognized traditional safe-haven currency is the Swiss franc. The U.S. dollar and the Japanese yen also sometimes act as safe-haven currencies.

Why the Swiss franc is a safe-haven currency

Switzerland is still a permanently neutral country internationally. Moreover, the country has an extremely strict banking secrecy system, and the Swiss National Bank independently formulates monetary policy. Therefore, Switzerland is considered to be the world's safest place, the Swiss franc has long been regarded by investors as the traditional safe-haven currency. Historically, the Swiss franc has been the first choice of investors to transfer funds in the event of international political tension or increased uncertainty about economic growth. In order to avoid risk, investors are also happy to hold those who have a current account surplus of the country's currency, so Switzerland has a huge current account surplus is also often incentivized by the market buying of the Swiss franc, thus promoting the Swiss franc upward. In addition, the Swiss government on the financial, foreign exchange to take the protection policy, so that a large number of foreign exchange influx into Switzerland. In addition, the National Bank's ample amount of gold reserves also contribute to the stability of the currency.

Why the yen is a safe-haven currency

Japan is an island nation, not easily affected by geopolitics and other factors.

Japan's monetary policy is also a major reason. The economy is not going to cut interest rates to stimulate the economy, cut interest rates, hold currency is relatively uneconomical, and is expected to cut interest rates, high-interest currency exchange rate is suppressed, low-interest currencies have a safe-haven role. When there is a crisis, other countries' currencies may cut interest rates and depreciation, Japan has a long history of low interest rates, the drop can not be reduced, so the yen hedge.

Low interest rates make the Japanese yen suitable for arbitrage transactions in the financing currency, which is the currency speculators in the choice of trading strategy to do *** knowledge. In an arbitrage trade, a speculator borrows a low-interest currency, such as the yen, and then trades it against a higher-interest currency, from which the speculator earns a spread. In the event of the wind, these speculators are often active or forced to close the arbitrage transaction, sell the high-interest rate currency, buy the yen to repay, pushing the yen exchange rate up.

Why the U.S. dollar is a safe-haven currency

The United States is the world's largest economy, with a well-developed national economic system, the developed financial system, the dollar is also the most important foundation of the world monetary system. When the economic crisis comes, the United States than other countries have a stronger ability to resist pressure, so the financial market is accustomed to selling other assets, buy dollar assets to hedge, which also achieved the status of the dollar hedge currency.