Swedish Crown Gains on Central Bank Forecast for More Hikes, Softer Dollar

February 9, 2023Updated: February 9, 2023

LONDON—The Swedish crown rallied on Thursday after the country’s central bank raised interest rates and forecast further tightening, while the dollar weakened against most other currencies alongside positive sentiment across markets.

The dollar was last down 1.4 percent against the crown at 10.45 crowns and the euro was down 1.16 percent at 11.21, after the Riksbank raised its interest rate by 50 basis points to 3 percent, and forecast more increases in the spring.

“From first impressions it (the Riksbank) guided markets to a higher terminal rate, stated it’s desirable to have a stronger SEK (the crown), and sped up their quantitative tightening programme,” said Simon Harvey, head of FX analysis at Monex Europe.

“All this is very positive for SEK, but it’s unlikely to turn the tide too much if it’s met with a correspondingly hawkish ECB.”

The Swedish currency has been under pressure, having hit its weakest since 2009 against the euro earlier this week as markets bet the central bank will raise rates less aggressively than the European Central Bank due to domestic economic conditions.

Elsewhere, the euro climbed 0.47 percent to $1.076, largely looking through German inflation data that came in slightly below expectations, while the pound rose 0.46 percent to $1.2132 with Britain focused traders awaiting remarks to lawmakers from Bank of England governor Andrew Bailey.

The Australian dollar often seen as a proxy for sentiment, rose 0.77 percent to $0.6977 as the safe-haven U.S. currency dipped in line with a rally in equities and other so-called “risk friendly” assets, helped by strong earnings from companies.

The dollar also slipped 0.4 percent against the Japanese yen.

Markets are also digesting a series of remarks from Federal Reserve policymakers about the U.S. interest rate plans after Friday’s stronger-than-expected jobs data and ahead of next week’s closely watched inflation numbers.

The futures market shows traders anticipate the Fed funds rate peaking just above 5.1 percent by July then falling by the end of the year to 4.8 percent.

Moving to a federal funds rate of between 5 percent and 5.25 percent “seems a very reasonable view of what we’ll need to do this year in order to get the supply and demand imbalances down,” New York Fed President John Williams said at a Wall Street Journal event.

Williams’s comments followed Chair Jerome Powell’s sticking by his interest rate outlook on Tuesday, when he reiterated that a process of “disinflation” was under way.

“On one hand, Powell’s comments at the Economic Club of Washington the night before were less hawkish but on the other hand, Fed officials such as Williams (and Fed Governor) Lisa Cook took the opportunity to turn up the hawkish rhetoric,” said OCBC currency strategist Christopher Wong.

By Alun John

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