Swedish Krone Pares Gains After Hawkish Riksbank Statement

Yesterday, the Swedish Krone rose
sharply against the USD after the Riksbank released a hawkish statement. The
USD/SEK pair then pared most of those gains later in the day.

The central bank concluded the
monetary policy meeting yesterday and left interest rates unchanged at -0.25%.
In the monetary policy statement, the bank said that while the global economy has
recently become more subdued, the domestic economy was doing well. The bank
also re-affirmed that the inflation rate will remain above 2%, which is its
inflation target. The statement added
that:

Economic developments in Sweden and abroad have entered a phase of
lower growth. Although growth is more subdued, economic activity is still
strong. The conditions for inflation to remain close to 2 per cent in the
coming years have not changed to any great extent. The Executive Board has
therefore decided to hold the repo rate unchanged at −0.25 per cent. As in
December, the forecast for the repo rate indicates that the next increase will
be during the second half of 2019, provided that the economic outlook and
inflation prospects are as expected.

In an interview, the Riksbank
governor added that the bank will likely hike rates in the next half of the
year. He argued that the country’s economy is doing well, and that inflation
was along the target of 2%. The reason for higher inflation rate is that import
prices have risen following long periods of negative interest rates. This made
the krona one of the worst-performing G10 currencies.

The central bank surprised the
market in December when it raised the base lending rate from -050% to -0.25%.
This was the first rate hike in seven years.

After the rise in the krona
yesterday, the pair gave up these gains as investors started to focus on the US
inflation numbers. Data from the US yesterday showed that the headline and core
inflation numbers were better than what investors were expecting. This raised
the prospects of the Federal Reserve hiking rates again this year.

Yesterday, the USD/SEK pair
reached a low of 9.1840. The pair then rose to a high of 9.2825, which was
where it was before the rates decision. The pair has now started coming down and
has moved to the low of 9.2400. With the short and medium-term moving averages
crossing one another, there is a likelihood that the pair will continue moving
lower.

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