Business | Economy
Investors seek 'safe haven' currencies as inflation bites
As a toxic mix of slowing growth and rising prices permeates the global economy, investors are hunting out currencies backed by central banks with a credible record for tackling inflation.
- Reuters
- Published: 23:39 June 8, 2008
London: As a toxic mix of slowing growth and rising prices permeates the global economy, investors are hunting out currencies backed by central banks with a credible record for tackling inflation.
Price shocks caused by big increases in oil and food prices have hit hard, combining with the economic fallout from the credit crunch.
While inflation is not seen hitting the dizzy heights of the 1970s, analysts say a 'stagflation-lite' environment is spreading.
But there are pockets of resilience.
High on the list of currencies well placed to ride out the storm are classic 'safe havens' like the Swiss franc and yen, which offer investors the cushion of current account surpluses.
Both have performed well versus the dollar so far this year. "You could argue that there's a degree of virtuousness in Japan, because the era of deflation has been consigned to history and you could probably see a normalisation of interest rates through the course of this year," Rabobank markets strategist Jeremy Stretch said.
"The yen may well prove to be one of the slightly better currencies, if for no other reason than the fact that stagflation fears are not going to help risk appetite either," he added.
Taking the risk-averse argument to its logical conclusion, the Swiss franc - the Swissie - comes into clear view.
While not immune to inflationary pressures - consumer prices hit a 14-1/2 year high in May - the Swiss National Bank's resolve to combat that with monetary policy has supported the franc.
"I think the Swiss franc, even in an oil driven stagflation backdrop, performs well in part because of its inflation credibility," BarCap FX strategist Rodrigo Guimaraes said.
In an oil-driven inflationary environment, the Norwegian crown also merits examination. Morgan Stanley said its analysis found the crown showed consistently positive returns during environments of rising price pressure.
"The underlying fundamentals of the economy, including a consistent current account surplus, likely contribute to this result," the bank said in a note.
It also found that as Norway is a major oil exporter, the 'Nokkie' tends to benefit in commodity-price driven inflation.
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