The ‘strongest currency on earth’ just hit an 11-year high — and it’s stirring up trouble in Switzerland

Safe haven assets are off to a good start in 2026, with widespread uncertainty sending gold and silver to new records and the Swiss franc trading at decade highs.

But in Switzerland, policymakers are watching with apprehension.

The Swiss franc has already gained 3.5% against the U.S. dollar this year, driven higher amid unpredictable U.S. trade policy, questions over the independence of the Federal Reserve, and the threat of American military intervention in Greenland, Latin America and the Middle East.

That comes after it strengthened 12.7% against the greenback in 2025. On Tuesday, it touched on an 11-year high against the dollar, hovering near those levels on Wednesday morning even as it pared back gains.

Swiss franc

"Further escalation, geopolitically, means more uncertainty," Swiss National Bank Chairman Martin Schlegel told CNBC's Karen Tso on the sidelines of the World Economic Forum in Davos, Switzerland, last week.

"It's not good for the Swiss franc or for Switzerland, because the Swiss franc is a safe haven. Whenever there is uncertainty in the world, the Swiss franc appreciates, and this makes monetary policy more complicated for Swiss National Bank."

Unlike regional powers, Switzerland is battling sluggish price growth, and a strengthening franc could add further disinflationary pressure to the country's export-driven economy.

"The Swiss franc remains strong in part because demand for many Swiss exports is relatively price-inelastic," Giuliano Bianchi, Co-Founder, Quantitas Institute, EHL Hospitality Business School, told CNBC.

He noted that in key sectors such as pharmaceuticals, precision manufacturing and high-value services, currency appreciation does little to reduce foreign demand, weakening the mechanism that would otherwise stabilize the exchange rate.

"This complicates the SNB's task, as a strong franc lowers imported inflation and squeezes exporters' margins, weighing on wages and investment at a time when inflation is already subdued," he said.

With the country's inflation rate at just 0.1% and the Swiss National Bank's key policy rate is 0%, Switzerland is teetering on the edge of disinflation and negative interest rate territory.

In 2022, the SNB ended seven years of negative interest rates, which are unpopular with savers and lenders, as they eliminate returns on savings deposits and squeeze banks' margins and profitability.

"The bar to go negative is higher than normal, [but] if we need to go negative, we will go negative," Schlegel told CNBC.

Another tool the SNB has previously used to cool the Swiss franc is intervening in the foreign exchange market by selling the franc and purchasing foreign currencies.

However, doing this now comes with risks, just months after Switzerland secured a trade deal to reduce the 39% tariffs — some of the worst of the Trump administration's levy regime — to 15%.

The Trump administration imposed the heavy tariff last year as part of its so-called reciprocal tariffs, which, the White House said, were partly in response to other countries' "currency manipulation and trade barriers."

In June, the White House added Switzerland to a "Monitoring List" of nine trading partners whose "currency practices and macroeconomic policies merit close attention."

Lloyd Harris, head of fixed income at Premier Miton Investors, argued that the franc's appeal as a stable asset was likely to support its upward trajectory, regardless of the SNB's policy decisions.

"From a long-term perspective, the Swiss Franc is the strongest currency on earth, and this year it is likely to remain relatively resilient," he told CNBC via email.

"Factors that support it are the gold price, Switzerland's safe haven status amid geopolitical turmoil and its persistent current account surplus. The SNB may intervene if there's excessive strength, but over the medium term we don't really see a change to the Swiss Franc outperforming the USD."

Claudio Sfreddo, a doctor of economics and adjunct professor at Switzerland's EHL Hospitality Business School, said that recent history showed safe haven inflows could strengthen the franc even if the SNB took steps, such as cutting interest rates, that would otherwise ease the currency's growth.

"At the same time, greater political sensitivity around FX interventions further constrains the SNB's room for maneuver, sharpening the trade-off between price stability and growth," he told CNBC.

Nevertheless, Schlegel insisted in Davos that the SNB would do what it takes to meet its mandate — even if it risks drawing renewed anger from Washington.

"We are ready to intervene in the FX market if necessary," he said.