Political
turmoil usually leads to a money flow to safe havens like the Swiss currency.
But this week, an unusual pattern led to the biggest decline of the franc
against the euro since January 2015.
The Trump
administration issued an expanded list of sanctions last Friday, targeting
Russian businessmen and companies. Separately, Trump threatened Russia with
missile strikes on Moscow’s ally Syria.
The
political instability caused a sell-off on the US stock markets, and
strengthened safe havens like gold and the Japanese yen. But another safe
haven, the Swiss franc, took a hit.
“The
Swiss franc is driven predominantly by capital flows for now and Russia
sanctions included Swiss companies where Russians are invested,” said Manuel Oliveri, a currency strategist at Credit
Agricole SA, told Bloomberg.
“Increased
need for liquidity by Russians, and no appetite for leaving cash in
Switzerland, is changing the franc’s correlation with risk sentiment,” he said, adding market speculation on this issue was hard
to confirm. An example of such a Swiss company is Sulzer AG.
Shares in
Sulzer, a machinery manufacturer, fell on Wednesday. The next day, however,
they surged the most in 21 years after sanctioned Russian businessman Viktor
Vekselberg cut his stake.
“The
Swiss franc has been caught squarely in the Russian sanctions issue. For a
small, open economy like Switzerland, getting caught in a geopolitical tug of
war is extremely risky. Switzerland still derives value from safety and
privacy. So when that is threatened in any way certain investors get nervous,” Peter Rosenstreich, head of market strategy at Swissquote
Bank SA, told Bloomberg.
Source:
bloomberg