The Swiss franc may strengthen to parity with the euro should Greece suffer “a disorderly default” that sparks contagion through the region, according to UBS AG.
“In the scenario where you get a very disorderly default that sparks off a banking crisis and contagion to the rest of the euro-zone periphery, then we could see euro-Swiss go to parity or lower,” said Geoffrey Yu, a currency strategist in London at UBS, the world’s third-biggest foreign-exchange trader. “It would be the classic insurance trade effect.”
The franc appreciated 0.3 percent to 1.18947 per euro as of 11:30 a.m. in London, after reaching 1.18860. It strengthened to a record 1.18064 on June 24 and is 5.2 percent higher against the 17-nation currency this year. The franc rose 0.1 percent to 83.42 centimes against the dollar.
The Swiss franc is best performer among 10 developed-market currencies this year as measured by Bloomberg Correlation-Weighted Indexes amid deepening concern that a solution to the Greek debt crisis will evade European officials.
A “voluntary rollover” of Greek bonds as they mature into debt with similar terms would “very likely” be viewed by Fitch Ratings as a sovereign default, according to David Riley, the company’s group managing director with responsibility for sovereign ratings and international public finance.
“Fitch would very likely view such a scenario as a sovereign-default event and place the Greek sovereign rating into restricted default,” Riley wrote in a letter in the Financial Times published today.
UBS’s “base case” is for the Swiss franc to trade at about 1.20 per euro over the next month and to end the year at 1.35, said Yu. The bank expects the franc to weaken to 86 centimes per dollar over one month, 89 centimes over three months and to reach 1.04 francs in a year, he said.