Pox on dollar, euro makes Swissie good as gold Swiss franc parity with euro possible, analyst says

By William L. Watts, MarketWatch

FRANKFURT (MarketWatch) — Call it a race to the bottom, an ugly-dog contest or a pox on both their houses, but the battle between the dollar and the euro for the title of world’s most troubled currency shows no sign of letting up.

Right now, the dollar is back in the spotlight as politicians proceed with a high-stakes game of chicken over the U.S. government’s debt limit.

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But it’s not all rainbows and puppies in the euro zone either, even after last week’s agreement on a second bailout for Greece.

European leaders who had already congratulated themselves for stopping the spread of the region’s sovereign debt crisis.

Italian and Spanish government bond yields jumped on Monday, widening the yield premium demanded by investors to hold peripheral euro-zone debt over German bunds.

USDCHF 0.8037, -0.0022, -0.2762%

The net result of the latest bout of debt jitters on both sides of the Atlantic is a fresh wave of safe-haven buying that’s primarily benefitted what have often been the world’s most reliable safe havens — gold and the Swiss franc.

Record highs for the Swiss franc

The deepening conflict between the White House and congressional Republicans was credited with pushing gold to a record high, while lifting the Swiss franc to an all-time high versus the dollar at just below 80 centimes. There are 100 centimes in a Swiss franc.

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And the long-running euro-zone crisis has fed consistent gains versus the euro, with the Swiss unit setting a record high versus the 17-nation shred currency earlier this month.

The Swiss currency has rallied more than 4% versus both the dollarUSDCHF -0.28%  and the euroEURCHF +0.38%  in July. For the year to date, the franc is up more than 14% versus the dollar and around 6.5% against the euro. Gold futures, priced in dollars, are up more than 13% year-to-date.

The franc’s rise is approaching levels that has economists worried about the potential impact on Swiss economic growth. It’s also inspired strategists to expect a potentially dramatic pullback once safe-haven demand fades and risk appetite revives.

Strategists at Credit Suisse in Zurich estimate the Swiss franc remains around 15% overvalued versus the euro at the current exchange rate and on an inflation-adjusted, trade-weighted basis.