By Candice Zachariahs and Matthew Brown
Jan. 22 (Bloomberg) -- Investors should buy the euro against the franc after Swiss National Bank Vice President Philipp Hildebrand signaled officials may sell their currency to curb its appreciation, Goldman Sachs Group Inc. said.
The 16-nation euro may climb 3 percent to an initial target of 1.55 Swiss francs, a team of Goldman Sachs analysts headed by London-based Thomas Stolper, wrote in a research note e-mailed to Bloomberg News today. Investors should exit the trade if the euro closes below 1.465 francs, the analysts said.
“Direct or anticipated SNB intervention in the foreign exchange market,” is likely to help the euro “rally substantially,” the analysts wrote. “The expected risk reward for long euro-franc positions therefore looks very favorable.” A long position is a bet an asset will gain.
The euro traded at 1.5067 Swiss francs as of 7:01 a.m. in London from 1.5022 late yesterday in New York. The currency has gained 0.9 percent in 2009 after declining 9.7 percent last year, the biggest loss since its debut in 1999.
“The SNB is able to sell unlimited Swiss francs versus another currency,” the central bank’s Hildebrand said in a speech yesterday in St. Gallen, Switzerland. “In an extreme case, it can commit itself at the same time to buying unlimited currencies at a fixed-exchange rate.” Fellow policy maker Thomas Jordan said last week the central bank is watching the franc’s recent gain’s “very closely.”
Switzerland’s benchmark interest rate is 0.5 percent, compared with 2 percent in the euro region, and as low as zero in the U.S. The Swiss economy will probably shrink between 0.5 percent and 1 percent this year, according to forecasts from the central bank.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Matthew Brown in London at mbrown42@bloomberg.net.
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