The 'safe haven' currencies competing for champion status this season

What is the Liverpool or Manchester United of the currency world? A comparison between the foreign exchange markets and the Premiership is revealing.

What is a safe haven?

According to Reuters’ financial glossary, a safe-haven currency is 'a major traded currency, such as the US dollar or Swiss franc, used by investors and fund managers seeking a safe haven for their funds in times of market turmoil.'

So, if the US dollar and Swiss franc are examples in this definition, we must ask ourselves: are they still valid? Are they the only examples? What makes them 'safe'? Is this an outdated definition?

THE CONTENDERS

US dollar:

Liverpool was the team to be reckoned with in the 80s and 90s, but they seem to have lost some of their shine recently.  

The US dollar has always been that 'happy place' where traders and investors run when markets are volatile whilst they reassess where they want to house their funds.

The US was the biggest economy in the world, it had the most advanced financial sector and it was the most accessible currency in circulation. However, more recently, the US economy was the first into recession and, many would argue, the cause of the world credit crisis. Now the market is increasingly questioning the validity of the US dollar as the safe haven choice.

Is it now time for the US dollar to ‘walk alone’?

Swiss franc

Manchester United have had a great track record over the decades that it’s hard to bet against them. They’re clinical, well organised and will only accept the world’s best players.

Switzerland has long been seen as the place to stash cash which you want to keep liquid, but safe for a rainy day. It is one of the most prosperous countries in terms of private income, much like Manchester United. It has the largest proportion of millionaires (around 3.5% of the whole population!) and its economy contracted by less than 0.5% in 2008 and grew by 0.2% in 2009. The Swiss neutrality and sovereignty make it slightly unique; they prefer to do things on their own terms, protecting their nation’s interest. Many consider the Swiss to be a little dull, but their approach has to be admired and investors clearly do, as a quarter of all offshore funds are in Switzerland!

This is in some ways similar to world class football players playing for Manchester United, rather than playing for a home team.

Euro

Chelsea, has only been in the top three for a short time, but is quickly making a case for becoming one of the big boys.

The euro has shown huge strength in the recent recession as rumours circulated that oil could start being priced in euros and the Chinese started to hold a much larger percentage of their foreign reserves in euros.