Morgan Stanley Cuts Euro-Swiss Franc Target to 1.20 in 2011

The euro will extend its drop to 1.20 against the Swiss franc in 2011 after the common currency fell to a record low as investors sought a haven from the European sovereign-debt crisis, according to Morgan Stanley.

“We continue to look for sovereign issues plaguing the euro into the middle of next year, and that’s going to cause people to look for alternatives,” said Ronald Leven, executive director and currency strategist at Morgan Stanley in New York, in a telephone interview. “On the Swiss side, there isn’t really much evidence yet that the Swiss franc’s strength is hurting the economy.”

Europe’s currency declined 0.9 percent to 1.2671 francs at 12:55 p.m. in New York, after falling to a euro-era record of 1.2636. The euro dropped to Morgan Stanley’s previous target of 1.28 last week. Investors should exit a bet against the euro if it rises to 1.3020, according to Morgan Stanley.

The euro has depreciated 15 percent against the franc this year, reaching an all-time low after Moody’s Investors Service lowered Ireland’s credit rating to Baa1 from Aa2 last week.

The Swiss National Bank held the three-month Libor target rate at 0.25 percent on Dec. 16 in a bid to keep a lid on the franc. The SNB stopped intervening in currency markets in June, ending a 15-month policy of countering what it called “excessive” gains of the currency.

“The SNB now appears to be less concerned regarding deflationary risks and stated in their monetary policy meeting last week that they see ‘no threat to price stability in the short term,’” Morgan Stanley analysts wrote in an e-mailed research note today.

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