ZURICH: The Swiss franc trod water against the euro and the dollar on Tuesday as hopes that an upcoming European Union summit would produce a meaningful breakthrough in the region's festering debt crisis began to fade.
German Chancellor Angela Merkel dashed any lingering hope in financial markets on Monday that Europe would issue common euro zone bonds to help indebted countries, calling such an idea "economically wrong" and "counterproductive."
"What everyone hoped for was that the upcoming summit would bring a solution - but the comments from Mrs. Merkel don't raise hope that there will be one," said Sarasin economist Alessandro Bee.
"As long as the situation in Europe does not change investors will continue to seek shelter from the crisis in the Swiss franc," he said.
"At the same time the Swiss National Bank (SNB) will do everything in its power to defend the cap - it is therefore moving in tandem with the euro against the dollar."
After investors fleeing the euro zone crisis pushed the franc from one record high to another last year, the Swiss National Bank set a cap of 1.20 francs per euro on September 6, to try and stave off the threat of recession and deflation.
"With little encouraging news emerging out of the Eurozone EURCHF finds it difficult to decidedly move off the lower boundary of 1.20," said UBS economist Reto Huenerwadel.
Data in recent weeks has shown that the Swiss economy is not immune to the fragile economies in the euro zone. In a further sign the economy is losing steam, the UBS Swiss consumption indicator fell in May, due to a decline in business activity in the retail sector.
The franc was steady against the dollar compared to Monday's New York close, trading at 0.9605 francs per dollar at 0716 GMT.
The franc was little changed against the euro trading at 1.2007.
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