BLBG: Swiss Franc to Advance as SNB Stops Sales, Morgan Stanley Says
By Lukanyo Mnyanda
Oct. 23 (Bloomberg) -- The Swiss franc will likely strengthen to 1.50 per euro by year-end as a recovering economy and accelerating inflation prompt the central bank to stop selling the currency, according to Morgan Stanley.
The currency may strengthen to 1.48 by the end of March, compared with a previous forecast of 1.55, Stephen Hull, global head of foreign exchange strategy, wrote in a note dated yesterday. Morgan Stanley previously said that the franc would end 2009 at 1.54 per euro.
The franc declined 1.2 percent against the common European currency this year and traded at 1.5119 as of 8:57 a.m. in Zurich. It declined after the Swiss National Bank started buying foreign currencies in March to prevent it from appreciating and ward off the threat of deflation. It rose 11 percent in 2008 after investors bought it as a refuge from the financial crisis.
“As some central banks are now tightening and others are running down their emergency programs, the question of whether the SNB should abandon this policy is something that the market will focus on more,” Hull wrote. “We think that the policy will effectively be abandoned as soon as it’s no longer necessary.”
Currency Reserves
The SNB’s currency reserves barely rose in the third quarter, indicating the central bank was under less pressure to act to prevent the Swiss franc from appreciating, data published on the Zurich-based SNB’s Web site on Oct. 21 showed.
Switzerland’s recession has “probably bottomed out” and the risk of deflation is “much lower than before,” Jean-Daniel Gerber, who heads the State Secretariat for Economic Affairs, said on Oct. 19. The SNB will raise rates as soon as “we have the feeling the economic recovery is well established,” SNB chairman Jean-Pierre Roth was quoted as saying by Le Temps three days earlier.
“The policy of intervention looks to be increasingly inappropriate, given the recovery that is taking place globally and domestically,” Hull said in the note.
The SNB is scheduled to hold its next quarterly monetary policy assessment in December.
