The Swedish krona was seen trading mixed as the currency gave up the gains logged since mid-December. USDSEK was in a prolonged decline from a 16-year high that was posted late last year near 9.4100.
The USDSEK is currently caught between a hawkish Federal Reserve and a dovish Riksbank. Although interest rates were left unchanged at the monetary policy meeting on February 15, the central bank remained dovish as inflation remained fragile in the region which has push the central bank to rely on a weaker exchange rate as a result. The central bank had left interest rates unchanged at -0.50% while also keeping its asset purchases for the first half of 2017 unchanged.
The central bank policy makers also extended the mandate of the Riksbank governor and deputy governor to make decisions on currency intervention, which was seen by market participants as a scare tactic to keep the krona from appreciating too much. It is possible that as with most central bank threats, it will only be a matter of time before speculators will put the threat to test, however, a sharp strengthening in the krona will, of course, spur the central bank into action.
The Riksbank, in its monetary policy meeting, had only marginally revised its forecasts. Considering that policy decisions tend to mirror that of the ECB’s, the Riksbank is seen to remain on the sidelines in the months ahead, following in the footsteps of the European central bank.
The ECB for its part is expected to refrain from making further policy changes at least until the April/May French presidential elections are done with. Later in the year, the all important German general elections will be another reason for the ECB not to meddle with QE too much.
Meanwhile, drivers for the USDSEK will likely come from the March FOMC meeting, where the prospects for a rate hike is being taken seriously. But this is likely to change (increase or decrease) depending on the coming week’s payrolls report for February as well as PCE figures which the Fed tends to follow more closely than the consumer price index data.
