ZURICH: The Swiss franc traded near a four-month low against the dollar on Wednesday after tracking the euro more than 1 percent lower against the greenback the previous session as fears of a Greek euro zone exit continued to roil markets.
Against the euro, the franc traded in a narrow range, remaining tight on the 1.20 francs per euro cap set by the Swiss National Bank last September to prevent the Alpine economy from sliding into recession.
Market watchers said further euro weakness could induce traders to test the cap, as many were reluctant to make further bets on the franc weakening against the dollar in tandem with the euro.
"We have flagged two risks on which the cap could be tested: inflation in Switzerland, which is not the case for the moment, and tension in the euro zone, which is rising," said Vontobel head of forex research Sven Schubert.
"But for the time being we think the Swiss National Bank will use the available tools to defend the cap."
Risk appetite weakened on Tuesday after news agency Dow Jones quoted former Greek prime minister Lucas Papademos as saying some European states and institutions were considering contingency plans for any eventuality, including a Greek exit.
That put the skids under a tentative stock market recovery begun on Monday after several days of global equities losses.
But Papademos later was quoted by CNBC saying that there are no preparations under way in Greece for possibly exiting the currency block, providing some relief to emerging Asian currencies and the euro.
The franc fell 0.1 percent against the dollar compared to the New York close, trading to trade at 0.9475 francs per dollar by 0640 GMT.
The franc was steady against the euro at 1.2009 francs per euro.
Markets will be focused on an informal summit of EU leaders later in the day where newly-elected French President Francois Hollande is expected to push a proposal for mutualising euro zone debt.
But any concrete measures are likely to have to wait until European leaders meet in June.
"The month ahead of the June EU summit could be quite turbulent. Obviously there are macro risks on both sides, the EU and the United States, but the focus is now clearly on the euro zone," said Schubert.
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