The Swiss franc and Japanese yen climbed sharply on Monday as investors rushed toward traditional safe-haven assets following a wave of market anxiety triggered by the emergence of DeepSeek, a low-cost Chinese artificial intelligence model that sent tremors through global equity markets. The moves reflected a broader risk-off shift, with currency traders abandoning higher-yielding positions in favour of assets historically associated with capital preservation during periods of acute uncertainty.
The Swiss franc strengthened approximately 0.8 percent against the US dollar in early European trading, while the Japanese yen gained around 1.2 percent, briefly pushing the dollar-yen pair below the 154 level. Both currencies had been under modest pressure in recent sessions as investors weighed the prospect of diverging central bank policies, but the DeepSeek-driven selloff in technology stocks swiftly altered that calculus, according to the Street Journal report.
DeepSeek Disruption Triggers a Broad Risk-Off Rotation
The catalyst for Monday’s move was the rapid proliferation of reports that DeepSeek, a Chinese AI startup, had developed a large language model at a fraction of the cost assumed necessary by US technology giants. The news hammered semiconductor and AI-infrastructure stocks, with Nvidia shedding as much as 17 percent at one point during the session — one of the largest single-day market capitalisation losses on record for any individual company. The contagion spread quickly to equity indices across Europe and Asia, amplifying demand for currencies that typically absorb capital during periods of financial stress.
Analysts noted that the yen’s gains were particularly notable given the Bank of Japan’s recent steps toward policy normalisation. The currency had been among the weakest performers in the G10 complex through much of 2024, weighed down by wide interest rate differentials relative to the United States. Monday’s rally underscored how quickly those dynamics can reverse when risk appetite deteriorates sharply. Currency strategists at several major European banks revised their short-term yen forecasts upward, citing the potential for further equity market weakness if the DeepSeek narrative continues to erode confidence in US technology valuations.
The franc’s advance was similarly pronounced, drawing on Switzerland’s reputation as a neutral financial hub with a current account surplus and a deeply liquid sovereign bond market. Traders reduced exposure to emerging market currencies and commodity-linked assets simultaneously, with the South African rand and the Australian dollar both declining more than one percent against the dollar on the day.
Tariff Uncertainty Adds Another Layer of Pressure
Beyond the DeepSeek shock, currency markets were also contending with renewed concerns over the trajectory of US trade policy. Investors have been monitoring signals from Washington regarding the potential reimposition of broad-based tariffs on imports from multiple trading partners, a development that analysts warn could accelerate inflationary pressures in the United States while simultaneously dampening global growth. That combination tends to compress risk appetite and amplify demand for stores of value, a dynamic that has historically benefited both the franc and the yen.
The dollar index, which measures the greenback against a basket of major peers, slipped 0.5 percent on the day, reflecting the simultaneous pressure from safe-haven flows and uncertainty over whether the Federal Reserve would need to hold rates higher for longer to combat any tariff-induced price increases. Readers following those inflation dynamics may find further context in our earlier coverage of tariff-driven price pressures and the Fed’s evolving policy stance examined through Fed policy signals.
Looking ahead, market participants are likely to remain sensitive to any further developments in the AI sector as well as official commentary on trade policy. Options markets showed a meaningful increase in demand for franc and yen calls, suggesting that institutional hedgers are positioning for the possibility that current safe-haven flows persist beyond a single session. If equity volatility remains elevated through the week, both currencies could extend their gains, complicating export outlooks for Switzerland and Japan alike, even as their financial markets benefit from the inflows.