UBS Lowers Forecast for Euro Against Dollar on Debt Turmoil

The euro will trade lower versus the dollar as Europe’s intensifying debt crisis becomes harder to contain, according to UBS AG, which predicts the Swiss National Bank will raise the euro’s floor with the Swiss franc.

The 17-nation currency will fall to $1.35 versus the U.S. dollar in one month, $1.30 in three months and $1.25 in 12 months on concern that it may be too late for European leaders to turn the region’s sovereign-debt crisis around, Syed Mansoor Mohi-uddin, a foreign-exchange strategist in Singapore, said in a note to clients today.

UBS forecast earlier this month that the euro would trade at $1.40 by year-end. The currency will fall as the European Central Bank reckons with a euro-zone recession and potentially cuts interest rates further, according to Mohi-uddin, who couldn’t immediately be reached for comment.

Europe’s banks likely face increasing scrutiny in the weeks and months ahead, and any wobbles will affect national balance sheets at the worst possible time,” Mohi-uddin wrote. The dollar and the yen “have their own liabilities, but their relative reliability to the euro zone remains unquestioned.”

The Swiss National Bank will lift the threshold at which it intervenes to weaken the franc versus the euro to 1.25, compared with 1.20 now, according to Mohi-uddin. The Zurich-based institution “has explicitly determined the franc remains overvalued,” the UBS strategist wrote.

The euro dropped for the first time in three days against the dollar, falling 0.9 percent to $1.3633 at 4:28 p.m. New York time. Europe’s currency was little changed at 1.2368 francs.

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