- GBP/SEK Losses Strain 2021 Uptrend
- After Riksbank raises rates, signals more to come
- EUR/SEK Losses Leave Major Chart Support at Risk
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The Swedish krona outperformed all other major currencies in the penultimate session of the week, pushing the GBP/SEK exchange rate back to its late March lows and jeopardizing the British pound’s uptrend in 2021 after the Riksbank sought to address a growing inflation problem.
The Swedish krona rose against all of its counterparts in the G20 major currency contingent on Thursday after the Riksbank surprised the market by raising its exchange rate for the first time since before the coronavirus crisis, when many expected it that it remains unchanged at 0%.
The cash rate was raised to 0.25% while the Riksbank said in the April forecast that its benchmark for borrowing costs is expected to rise further this year and next, likely taking it to 1, 75% by the first months of 2025.
“We were in a minority (3 out of 17 polled by Reuters) of forecasters predicting a 25 basis point rate hike in April, and today’s announcement completes a remarkable reversal from the staunchly dovish stance of the Bank so far,” said David Oxley, a senior Europe economist at Capital Economics.
Above: The exchange rate between the Pound and the Krone is shown at daily intervals with Fibonacci retracements of the 2021 uptrend indicating possible areas of technical support for the Pound.
“While the Bank has spoken of the need to move cautiously through its tightening cycle, in practice we expect policymakers to tighten faster than they currently expect,” Oxley also said. Thursday.
In addition, the Riksbank has stated that it will immediately begin the delicate process of its exit from the Swedish government bond market by immediately ceasing its purchases of shorter-term government debt and reducing the amounts it reinvests in government bonds whenever an asset on its balance sheet matures.
“The Management Board has now decided to reduce the pace of these purchases during the second half of 2022, so that the holdings begin to decline. The Riksbank will buy bonds for SEK 37 billion in the second half of the year, half of the purchases made in the first half. The Board of Directors has also decided that the Riksbank will stop buying treasury bills as of April 28,” the Riksbank said in its statement.
As in other countries, rising energy and food prices have pushed inflation to over 6% in Sweden and raised concerns at the Riksbank that pricing practices by companies and workers’ wage demands react in a way that would lead to above-target inflation levels. take root.
Above: Above: Exchange rate between the pound and the krone displayed at daily intervals with Fibonacci retracements of the December 2017 uptrend indicating possible areas of short to medium term technical support for the pound sterling or resistance for the crown.
As a result, the bank intends to steadily reverse the growth in its balance sheet that has been induced by its crisis-inspired quantitative easing program, which has seen total assets held nearly double to almost 1, 6 trillion SEK over the course of just over two years to April 2022. .
“We also noticed that the Riksbank has underlined that it is ready to raise the repo rate more quickly if necessary to ensure that inflation returns to target. Today’s announcement was broadly in line with our Going forward, we will stick to our assessment that the repo rate will be increased at every monetary policy meeting until April 2023, bringing the repo rate to 1.5%,” says Knut Hallberg, Senior Economist at Swedbank.
The krone strengthened following the decision, leaving the pound and the euro close or testing important support levels on the charts, levels that are likely to give way in the weeks and months to come if the action Thursday’s price reading turned out to have marked the start of a trend for the Swedish currency.
“We are still struggling to see EUR/SEK trading sustainably below 10.20 in the coming weeks. Longer term, however, the Riksbank’s policy shift should provide lasting support for the crown, and periods of stabilized market sentiment (particularly in Europe) could see the widening EUR-SEK spread push the pair significantly lower.We now expect a move below 10.00 EUR/SEK in the second half,” says Frantisek Taborsky, strategist at ING.
Above: EUR/SEK exchange rate displayed at daily intervals with Fibonacci retracements of the November uptrend indicating possible areas of short to medium term technical support for the euro and resistance for the krone.