This week saw investors flock to a number of safe haven currencies following heightened trouble between North Korea and the US. Exacerbated by a number of statements and tweets from both sides. The uncertainty caused investors and market makers to move towards safe haven currencies such as the Swiss Franc and Yen. The current risk-off approach sees an estimated $1Trillion Dollars wiped off Global Stocks.
Much of the movement towards the Yen and Swiss franc was caused by ultimatum that President Donald Trump has made towards North Korea this week; saying that any threats to the North Korean capital Pyongyang would be met with
‘’fire and fury like the world has never seen.’’
This promoted global concerns that we could be heading towards a nuclear war, potentially unleashing the most dangerous times in a generation. Particularly taking into account the volatile temperaments of both involved.
Currently, the battle has remained simply a war of words however with North Korea now stating that their nuclear missiles do have the capabilities to reach the US Pacific island of Guam. Whilst historical figures show their missiles have the capability to travel up to 6500 miles.
Safe haven currencies are those which are considered for whatever reason to be less risky or volatile, particularly in times of global adversity such as potentially imminent conflict.
The two main currencies currently ‘benefiting’ from tensions between North Korea and the US are the Japanese Yen and Swiss Franc.
Both of these currencies currently boast a number of attributes which make them the investors choice of safe haven currencies.
Japan’s Yen has great liquidity and benefits from regular investment from overseas meaning much of its assets are held overseas.
Swiss Franc currently epitomises a safe haven currency; it enjoys conservative growth, therefore, avoids becoming a bubble, it also has a debt to Gross Domestic Product ratio of just 35%. Switzerland enjoys a stable political system and enjoys a history of complete neutrality. The CHF is one of the most overvalued currencies since its un-pegging with the Euro.
Following the wrangling’s and threats, currency markets looked toward the safe havens currencies which are currently found in the CHF and JPY.
The USD/CHF depreciated dramatically over the last week moving from a week high of 0.9767 to a low of 0.9599 in just a few days. Many expect this pair to head toward the high 0.95 ball park as threatening rhetoric will surely continue this week.
The other currency to benefit from the instability was the Japanese Yen. Ironically this week remebered those killed in the Nagasaki nuclear attack in 1945. A an event which killed in excess of 70,000.
The Japanese Yen enjoyed a gradual gain against the USD over the course of the week. On Monday The USD/JPY opened at 110.83, seeing a low of 108.94 and closed on Friday at 108.99.Once again if the war of words continues or tension increase further expect the USD/JPY to head towards 106 mark.