ZURICH: The Swiss franc tracked the euro higher against the dollar on Thursday as encouraging US data gave a fillip to risk appetite ahead of a European Union summit later in the day where leaders will debate measures to tackle the region's debt crisis.
But optimism remains tenuous as stark divisions among European leaders over what steps to take to solve the region's ongoing debt crisis have lowered market expectations ahead of the two-day summit.
German Chancellor Angela Merkel on Wednesday brushed aside increasingly shrill calls from Spain and Italy for emergency action to lower their soaring borrowing costs and poured cold water on the idea of joint euro zone debt.
"There are a lot of things where the market shouldn't expect too much from EU officials," said Sven Schubert, head of FX research at Vontobel. "Sentiment should be weaker but you don't see a strong negative reaction right now because expectations are already quite low."
U.S durable goods orders rose a better-than expected 1.1 percent in May on strong demand for transportation equipment, giving a modest boost to risk appetite and pushing US and Asian shares higher overnight.
The franc has been trading largely in tandem with the euro since the Swiss National Bank capped it at 1.20 to the single currency last September, after safe-haven buying almost pushed the unit to parity, hitting exporters and the tourism industry.
Swiss National Bank vice chairman Jean-Pierre Danthine said on Thursday that the minimum exchange rate of 1.20 francs to the euro was "an absolute necessity" for the economy.
He reiterated the central bank's warning that it is ready to take further measures, including imposing capital controls, in the case of severe crisis.
"We don't need at the moment extra instruments... We are prepared to use other instruments in a worst case scenario," Danthine told an event in Zurich.
Anxiety over the euro zone crisis has driven up the amount of cash commercial banks hold with the SNB in recent weeks. Data on the SNB's foreign exchange reserves due next week will show whether the central bank is still having to intervene heavily to defend its cap.
The franc rose 0.2 percent against the dollar compared to the New York close, trading at 0.9605 by 0657 GMT. The franc was little changed against the euro at 1.2009.
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