Bank Buyers Could Derail Swiss Franc Sellers. By Katie Martin

If any bank knows what it's talking about when it comes to the Swiss franc, it surely has to be UBS.

After all, it's Swiss, and it's the second-biggest foreign exchange bank in the world.

So it's worth paying attention to the bank's assessment that the currency is going to keep on climbing despite the Swiss National Bank's clear distaste for franc strength.

The central bank has repeatedly threatened to intervene to shove the currency back down, as a stronger franc means cheaper imports and, possibly, deflation.

Indeed it is believed to have intervened at least twice this year, prompting sharp Swiss franc drops against the euro and other major currencies.

Many analysts are taking the SNB at its word when it makes it clear it's willing and able to do the same thing again as the currency has stubbornly edged back up.

Most Swiss franc watchers see value in selling the currency whenever it moves higher, in anticipation of a fresh SNB sting. Some others even wonder who on earth is buying the franc, as the SNB has made it so plain it won't stand for it.

Not so UBS. In notes to client Tuesday, the bank advised buying the currency against both the euro and sterling, for a range of reasons.

Firstly, in its interest rate decision last week, when it kept rates on hold, the SNB upped its growth and inflation forecasts. Maybe, suggested Geoffrey Kendrick, an analyst at the bank, that could mean that the SNB could be cornered into a rate rise sooner than it expects next year.

Kendrick isn't alone in that view. Several economists have pointed to the SNB's outlook as a reason to pause before selling the franc.

Crucially, though, UBS stresses that Swiss banks are "continuing to shrink their balance sheets". In other words, they're getting rid of lots of foreign-currency assets to bolster their own Swiss franc coffers.

So that's who's buying Swiss francs. It's not just Hungarian mortgage holders, desperately repaying the Swiss franc loans they took out in the good times when the franc was weak. It's not little green men from Mars who haven't listened to the SNB's regular warnings about currency strength. It's Swiss banks.

And UBS, famously hobbled by huge debt write-downs, is more than likely to be at the top of that list.

Buy the franc against the euro, Kendrick said.

While you're at it, buy the franc against the pound too, said his senior colleague Mansoor Mohi-uddin, who again drew on the impact of Swiss banks' deleveraging.

Sterling has been quietly tanking against the Swiss franc of late, while most eyes have been on its pattern against the euro and the dollar. That trend looks set to continue, Mohi-uddin added.

Now, UBS could be wrong about this. But it would likely be unwise to ignore it.

In early European trading Wednesday, the euro was at CHF1.5140, a shade lower than in late New York hours Tuesday. Similarly, the dollar was little changed at CHF1.0230.

The euro had stabilized against the dollar after an overnight spike that pushed it to a fresh low for the year. It was at $1.4798, equal to levels seen late in New York. The dollar was under stronger pressure against the yen, trading at Y90.82 from Y91.18.

The pound was a little higher at $1.6375 from $1.6365.