Navigating Geopolitical Storms: Safe-Haven Currencies in the Crosshairs of U.S.-Iran Tensions

The escalating U.S.-Iran conflict, marked by military strikes on Iranian nuclear sites and reciprocal threats, has injected volatility into global markets. As geopolitical tensions peak, investors are turning to traditional safe-haven assets to hedge against uncertainty. Among these, currencies like the U.S. dollar (USD), Swiss franc (CHF), and Japanese yen (JPY) have emerged as critical tools for navigating this turbulent landscape. This analysis explores how these currencies are performing amid the crisis, the risks of further escalation, and actionable strategies for investors.

The Geopolitical Backdrop: Tensions Reach a Boiling Point

The U.S. and Israel's coordinated strikes on Iranian nuclear facilities—Fordow, Isfahan, and Natanz—have pushed tensions to a 21st-century high. Iran's vow to retaliate, coupled with threats to close the Strait of Hormuz (a chokepoint for 20% of global oil supply), has amplified fears of supply disruptions and inflationary spirals. While markets have so far treated the conflict as contained, analysts warn that a full-blown crisis—such as a Hormuz blockade—could trigger a severe risk-off environment.

Safe-Haven Currencies in Action: USD, CHF, and JPY Under the Spotlight

1. The U.S. Dollar (USD): The Anchor of Choice

The USD has surged as the preeminent safe-haven currency, benefiting from its status as a global reserve and the Federal Reserve's hawkish stance. Despite expectations of rate cuts later in 2025, the Fed's emphasis on curbing inflation has bolstered the greenback.

The DXY's climb to near 99.10 reflects heightened demand for safety. Investors are also pricing in geopolitical risks, with USD/JPY hitting a one-month high of 146.415. However, the USD's long-term trajectory hinges on fiscal policy and whether the U.S. can avoid a prolonged Middle East quagmire.

2. The Swiss Franc (CHF): Neutral Strength in a Fractured World

The CHF, bolstered by Switzerland's political neutrality and stable economy, has strengthened against the USD. shows the pair falling to 0.8170, its lowest since 2023. This outperformance underscores the CHF's appeal as a haven during crises, though its gains are tempered by Switzerland's shrinking trade surplus (down to CHF 2.0 billion in May 2024).

3. The Japanese Yen (JPY): A Reluctant Safe Haven

The yen's performance is paradoxical. Despite safe-haven demand, USD/JPY rose to 146.415 due to the Bank of Japan's (BOJ) ultra-accommodative monetary policy. The BOJ's reluctance to tighten rates—even as inflation (excluding food) in Tokyo edged up to 3.6%—has kept the yen weak.

This divergence highlights a critical trade-off: while the yen benefits from geopolitical safety, its monetary policy leaves it vulnerable to inflation and global dollar strength.

Emerging Market Currencies: The Underbelly of Geopolitical Risk

The turmoil has taken a toll on emerging markets, particularly those tied to regional instability. The Turkish lira (TRY) and Iranian rial (IRR) exemplify this vulnerability:

• Turkish Lira (TRY): Despite TRY/USD stabilizing around 32.2, Turkey's 75.45% annual inflation rate and central bank rate hikes (50% policy rate) have kept the lira under pressure.
• Iranian Rial (IRR): Sanctions, collapsing oil exports, and inflation (unofficial estimates exceed 50%) have decimated the rial's value. While not explicitly tracked in global forex markets, its decline mirrors broader regional instability.

Key Risks and Catalysts to Watch

1. Strait of Hormuz Blockade: A closure would spike oil prices (potentially to $100+/barrel), triggering a full risk-off scenario.
2. Diplomatic De-escalation: If talks resume (unlikely in the near term), risk assets could rebound, weakening safe-havens.
3. Central Bank Policy Shifts: The Fed's next rate move and BOJ's inflation response will influence USD and JPY dynamics.

Investment Strategies: Navigating the Storm

1. Go Long on Safe Havens

• USD: Maintain a long position via USD-denominated ETFs (e.g., UUP) or shorting emerging market currencies like TRY.
• CHF: Consider the FXF ETF or direct exposure to Swiss government bonds.
• JPY: Pair with USD cautiously; focus on BOJ policy signals.

2. Short Emerging Market Currencies

Target oversold currencies like the TRY and IRR (via proxies like regional ETFs) while hedging against sudden de-escalation.

3. Hedge with Commodities

Gold (XAU/USD) and oil (Brent crude futures) offer diversification against inflation and supply shocks.

4. Monitor Geopolitical Triggers

Use tools like to track real-time shifts in risk appetite.

Conclusion: A Delicate Balancing Act

While the USD, CHF, and JPY remain the bedrock of safe-haven strategies, their performance is far from assured. Investors must balance geopolitical risks with macroeconomic trends, such as inflation and central bank policies. A Hormuz blockade could amplify safe-haven demand, while a diplomatic breakthrough might trigger a rotation back to risk assets.

For now, the prudent approach is to allocate 10–15% of portfolios to USD/CHF pairs, pair them with gold, and maintain stop-losses to mitigate escalation risks. As the old adage goes: in geopolitics, the calmest waters are often found in the safety of preparedness.

Stay vigilant. Stay diversified.