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A Changing Definition of “Safe Haven”

For decades, investors have instinctively turned to a familiar trio during periods of geopolitical stress and financial turbulence: the U.S. dollar, Japanese yen, and Swiss franc. These currencies historically acted as shock absorbers for portfolios, often rising when risk assets faltered.

Over the past 12–18 months, however, the narrative has shifted. Currency markets have become more fragmented, correlations have weakened, and traditional safe-haven behavior has been far less reliable. As a result, institutional investors, sovereign funds, and asset managers are reassessing how they define currency safety and diversification.

While demand for defensive assets such as gold has surged, the performance gap among the major haven currencies has widened significantly, revealing structural and policy-driven pressures beneath the surface.

Dollar Under Pressure Amid Policy and Debt Concerns

The U.S. dollar entered a prolonged period of weakness through 2025 and early 2026, weighed down by a mix of fiscal expansion, trade disruptions, and shifting global capital flows. Trade tensions and tariff adjustments introduced policy uncertainty that triggered periodic sell-offs in U.S. assets.

Analysts at institutions such as Julius Baer and Deutsche Bank have pointed to rising fiscal deficits and political pressure on monetary policy as factors eroding confidence in the currency’s traditional defensive role.

The U.S. Dollar Index fell more than 9% in 2025 and continued to drift lower in early 2026, at one point reaching its weakest level in nearly four years. Some strategists, including portfolio managers at Smead Capital Management, argue the move resembles past multi-year dollar downcycles that followed major market booms.

Long-term investors are increasingly questioning whether the dollar still reliably rallies during risk-off episodes, noting that its correlation with equities has hovered near zero rather than showing the inverse relationship typically associated with a haven.

Yen Volatility Highlights Policy Constraints

The Japanese yen, long viewed as a refuge due to Japan’s creditor status and deep financial markets, has also struggled to maintain stability. Exchange rate swings throughout 2025 reflected a tug-of-war between monetary normalization expectations and domestic political shifts.

The currency traded around 156 per dollar at the start of the year, strengthened modestly on expectations of policy tightening, and then weakened again amid expansionary fiscal signals following the rise of Prime Minister Sanae Takaichi. By early 2026, the yen had repeatedly tested the mid-150s range, prompting speculation about potential intervention.

Research from banks including ING and Citi suggests authorities may become more active if the currency approaches the 160 level, a threshold widely viewed as politically and economically sensitive.

The yen’s challenge is structural: low yields reduce its attractiveness, while policy normalization remains gradual. This dynamic has limited its ability to rally decisively during global risk-off moments.

Swiss Franc Strength Comes With Economic Trade-Offs

In contrast, the Swiss franc has emerged as the most resilient of the traditional safe-haven trio. Over 2025, it appreciated roughly 13% against the dollar and reached multi-year highs versus both the dollar and the euro, reinforcing its reputation as a store of value.

Switzerland’s macro fundamentals—political stability, low public debt, and a persistent current-account surplus—continue to attract capital during uncertain periods. Analysts at UBS and MUFG note that, over long horizons, the franc has outperformed most G10 currencies in preserving purchasing power.

Yet the currency’s strength is not an unqualified positive. With inflation hovering near 0.1% and the policy rate at zero, a stronger franc tightens financial conditions and pressures Switzerland’s export-driven sectors. The Swiss National Bank has signaled it remains ready to intervene if appreciation becomes disruptive, though large-scale action could carry geopolitical sensitivities.

Safe Havens in a More Complex Market Cycle

The diverging paths of the dollar, yen, and franc illustrate a broader shift in global macro dynamics. Safe-haven status is no longer determined solely by liquidity and historical precedent; it now reflects fiscal credibility, political stability, and policy flexibility.

Market strategists at firms such as Ebury argue that investors are moving toward a more nuanced approach, blending currency exposure with commodities and short-duration fixed income rather than relying on a single defensive currency.

Looking ahead, consensus forecasts suggest modest dollar stabilization, limited upside for the franc as valuation pressures build, and continued episodic volatility in the yen. The bigger takeaway for portfolio construction is structural: diversification across multiple defensive assets may matter more than ever.

The Bottom Line

The past year has challenged one of the oldest assumptions in global finance—that certain currencies reliably protect capital in turbulent times. While the Swiss franc currently holds the strongest haven credentials, even it carries economic costs at home.

For investors, the message is clear: safe havens still exist, but their behavior is evolving, and relying on legacy playbooks alone may no longer be enough in a more volatile and policy-driven world economy.