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Yen and Swiss Franc: Still Safe Havens?

Hurricane
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Hurricane

When you buy a currency that's supposed to be a safe haven, you don't exactly expect a 300-pip move overnight. But that's what yen holders got after the Bank of Japan intervened to stem the currency's rise. Swiss francinvestors also got burned when the Swiss National Bank vowed to bring interest rates to near zero.

How safe are these currencies really?

"With both the Swiss National Bank and Japan’s Ministry of Finance doing all that they can to fight the strength of their respective currencies, it could be argued that two of the (relatively) more attractive safe haven units now have question marks hovering over them," wrote Simon Derrick, chief currency strategist of Bank of New York Mellon, in a note to clients. Derrick thinks the interventions may wind up giving the euro a bit of support, noting that the single currency fared relatively well Japan intervened massively last September.

(That's not to say he's bullish on the euro, though. "I don't think it's going to collapse," he told me. "Could I imagine it in the high 1.30s? Yes. Could I see it heading down to 1.30 or lower in the next few months? Probably not.")

Others think the yen and Swiss franc will remain in favor when investors really want safety.

"The interventions undermine CHF and JPY somewhat. Speculators who buy them when they anticipate mini collapses of risk appetite will now run scared of getting stopped out by an intervention episode," Gregory Anderson, a senior currency strategist at Citigroup, told me. Leveraged investors have been long both currencies since last July, except for a brief period last spring when they temporarily bailed out of the yen. "However, in the event of a major collapse of risk appetite such as would occur if we tipped into a global double-dip recession, these currencies would probably still appreciate," he says.

The bottom line: you can still use the Swissie and the yen when you really want safety - but watch out for central banks.

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