Krona climbs after central bank holds rates steady

London

THE Swedish krona jumped against the US dollar and euro on Tuesday after the central bank held interest rates steady and maintained stimulus measures designed to support an economy battered by the novel coronavirus pandemic.

The krona rose 1.2 per cent against the US dollar to 9.911, a two-week high, and 0.6 per cent against the euro to 10.7905, its highest since mid-March.

With Sweden facing its worst downturn since World War II, investors had watched closely for any sign the Riksbank would push rates back below zero after it became the first central bank to ditch a negative interest rate policy late last year.

But the Riksbank left its benchmark rate at zero per cent, as expected, with its governor saying a rate cut would not solve Sweden's economic problems.

Unlike the majority of central banks around the world during the coronavirus pandemic, it has argued it is better to focus on credit supply and counteract a rise in interest rates to households and companies.

"It's hard not to see this as a bit hawkish - you'd think that if they didn't cut rates now, when would they cut?" said Morten Lund, FX strategist at Nordea, adding that he expected rates to remain steady this year and next.

The Swedish currency was the major mover on Tuesday, with investors turning their attention to policy meetings by the US Federal Reserve and European Central Bank (ECB) later this week.

Appetite for riskier currencies, earlier subdued by a fresh fall in oil prices, picked up through morning trading. By shortly before noon, the greenback was softer against a basket of currencies, falling 0.5 per cent to 99.970 - its lowest in a week.

It was also down by a similar amount against the yen at 106.705 yen per dollar.

As oil steadied somewhat from its latest plunge - Brent crude turned positive after dropping 5 per cent and US crude regained over half of a 20 per cent plunge - the euro gained 0.5 per cent to US$1.08805.

Markets are looking for any forward guidance from the Fed, which was set to meet later on Tuesday and is due to issue a statement on Wednesday. The ECB meets on Thursday.

The Fed has led the global monetary policy response to the pandemic by cutting interest rates to zero and aggressively buying bonds and corporate credit. REUTERS