ZURICH: The Swiss franc tracked the euro lower against the dollar on Wednesday as stronger-than-expected US manufacturing numbers boosted hopes the global economic recovery could be gaining momentum and buoyed the greenback.
Traders will be keeping a close eye on a slough of economic data due this week, including European purchasing managers' numbers later on Wednesday and US jobs data on Thursday for clues to the strength of the recovery.
The franc and euro pulled off four week highs struck against the dollar the previous session in thin May 1 trading as much of Europe celebrated a public holiday as concerns over the Spanish economy continued to weigh on the euro.
"We see more dollar strength in the short term as the focus switches to Spain and we have a 1.29 euro-dollar target," Vontobel head of foreign exchange research Sven Schubert said.
"However, speculators' positions are extreme in a historic perspective which should limit the downside of the euro."
The franc has continued to shadow the single currency since the Swiss National Bank imposed a 1.20 francs per euro cap in September to prevent the super strong franc from tipping the Alpine economy into recession.
The SNB has vowed to take any measures needed to defend the cap, yet the fact that the economy has escaped contraction and forward-looking indicators like the KOF point to a pick up in momentum are keeping upward pressure on the franc.
"We see the franc staying in the 1.20 to 1.25 range after remaining tight on the 1.20 level for the last three months. We see the ECB resuming its asset repurchase programme, which argues for euro to remain weak against the Swiss franc," Schubert said.
"The swissie is still overvalued against the franc, but with inflation higher in the euro zone than in Switzerland, the purchasing power differential is falling," he added.
The franc fell 0.1 percent against the dollar compared to the New York close to trade at 0.9087 francs per dollar by 0720 GMT.
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