The Swiss National Bank’s ceiling on the franc versus the euro is vulnerable because the sovereign debt crisis may deepen, according to JPMorgan Chase & Co. strategists.
The SNB’s foreign-exchange reserves surged to 70 percent of Switzerland’s gross domestic product in May, more than the 56 percent level when the central bank abandoned its previous currency-intervention policy in May 2010, analysts led by Nikolaos Panigirtzoglou wrote in a note to clients today. They recommended protecting against euro weakness via options.
“The merits of accruing so much exposure to the euro will look increasingly suspect if the sovereign crisis intensifies and euro-dollar collapses in a high-volatility fashion, thus anchoring Swiss monetary policy to an imploding asset,” the analysts said.
The Swiss currency was little changed at 1.2011 per euro at 4:15 p.m. London time. The SNB has vowed to resolutely defend the 1.20 francs-per-euro cap it established in September after the euro-area debt crisis pushed the haven currency to a record high of 1.008 per euro.