Investors snapped up the Swiss franc more than any other currency on Tuesday as they dumped the dollar after terrorist attacks on New York City and Washington.
The franc's 2.9 percent surge against the dollar, its biggest one-day gain in four years, shows the currency is investors' No.1 choice ahead of the euro, yen and other currencies. That's because investors expect the Swiss National Bank will be able to foster an economic rebound before the European Central Bank or Japan's central bank, analysts say.
"The Swiss franc becomes the safe-haven currency of choice," said Dustin Reid, a currency strategist at UBS Warburg in Stamford, Connecticut. "People don't really trust the euro and are skeptical" Japan's economy will start to grow again.
In times of international crisis, investors have traditionally sought refuge first in the US dollar, the most-traded currency in the US$1.1 trillion-a-day market.
Yet people sold the dollar today, rather than buying it, because the attacks "actually happened in the US," said Bernard Tsui, a corporate currency adviser at Union Bank of California in Los Angeles.
Terrorists hijacked commercial airliners and slammed them into New York's World Trade Center, tumbling the two towers, and the Pentagon in Washington. Investors worry the attacks could deepen the US economic slowdown.
The franc -- also a traditional beneficiary of international calamities -- gained to a six-month high of SF1.6400 per dollar from SF1.6884 yesterday. The 2.9 percent surge was its biggest one-day percentage gain since May 1997.
In comparison, the euro gained 1.9 percent against the dollar today and the yen 1.3 percent.
"It's not surprising to see the euro go up a couple of cents but I don't think it will take off in any particular way," said Robert Mundell, professor of economics at Columbia University. The euro is "not on a solid footing yet" and "it cannot assume the position yet of being a refuge currency."
Switzerland, Europe's No. 7 economy, hasn't adopted the euro and isn't a member of the EU. Investors have more confidence in the Swiss National Bank than the European Central Bank, which in less than three years of existence has given mixed messages on its monetary policy stance, analysts say.
Switzerland also has Europe's lowest jobless rate, at 1.7 percent in August.
The unemployment rate in Germany, the euro zone's largest economy, is 9.3 percent, while Japan's last month rose to a record high of 5 percent as the world's second biggest economy teeters on the brink of recession.
Since its debut in January 1999, the euro has shed 22 percent against the US dollar.
The Swiss franc has lost about 16 percent in that period.
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