EUR/SEK Pops As Riksbank Stays Cautious
Carl Paraskevas | Feb 10, 2022 01:12PM ET
The Riksbank left its key repo rate on hold at 0% Thursday, as widely expected. But to the disappointment of more hawkish observers, the central bank only modestly adjusted its forward guidance on interest rates. It now pencils in an interest rate hike sometime in the second quarter rather than the final quarter of 2024.
Furthermore, the central bank stopped short of announcing an end to asset purchases, opting instead to purchase 37-billion-krona worth of bonds in the second half of 2022 to offset maturing assets. Many had expected at least an announcement on ending treasury bond purchases.
h2 A Close Vote/h2Still, Thursday’s decision was a close one. Riksbank deputy governors Bremand, Floden, and Olsen all voted against the decision in preference of less asset purchase which would lead to gradually tapering over the second half of this year. Governor Stefan Ingves, for the first time since 2008, cast the deciding vote against tapering.
h2 Out of Place?/h2The Riksbank’s main argument for not hiking is that most of the inflation in Sweden is coming from higher energy prices rather than from the strength of Sweden’s underlying economy. Yet Thursday’s decision makes the Riksbank one of the most dovish developed central banks, particularly in comparison with Bank of England, Fed, and even the ECB.
Looking ahead, given Thursday’s voting pattern, the pace of global inflation, and monetary tightening elsewhere, expect the Riksbank to move gradually more hawkish as the year progresses.
h2 EUR/SEK - Technical View/h2The impact of Thursday’s decision was unequivocally positive for EUR/SEK, as traders were anticipating a more hawkish Riksbank. EUR/SEK spiked higher in reaction to the decision, reaching a high of 10.53380 before higher-than-expected US CPI print propelled it higher later in the day.
Big picture, however, the pair has for the most part been confined to a range of 10.11000 and 10.70815 since May last year. Expectations of a more hawkish Riksbank may be just enough to prevent an upward breakout of that range.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.