Riksbanken rate hike lifts Swedish krona

THE Swedish crown rose on Thursday (Jun 30) against the euro after Sweden’s central bank hiked its benchmark interest rate by 50 basis points as expected.

In the meantime, the euro flattened against most peers, remaining close to a fresh 2015-low versus the Swiss franc and near a 2-week low against the US dollar, amid safe-haven demand on renewed worries about higher rates and a global recession.

The Swedish krona was up 0.1 per cent against the euro at 10.6810 at 0830 GMT after briefly jumping 0.4 per cent against the euro to 10.6410 following Sweden’s Riksbanken rate hike to 0.75 per cent.

Jesper Petersen, FX analyst at Danske Bank said the kneejerk reaction on SEK-crosses would likely fade as the Riksbank signalled more aggressive hikes during rest of 2022 “however, from 2023 and beyond the new rate path was somewhat lower than we expected the Riksbank to present today”.

The common currency was set for its worst quarter against the US dollar since the end of 2016, on track for a 5.6 per cent quarterly decline.

It was 0.1 per cent lower on the day versus the greenback at US$1.0434, after losing 0.75 per cent on the US dollar on Wednesday.

It also dropped to a fresh 7.5-year low versus the safe-haven Swiss franc at 0.9964 francs, with still basking in the afterglow of the Swiss National Bank’s surprise rate hike 2 weeks ago.

Jane Foley, head of FX strategy at Rabobank London, said rising concerns around recession in the eurozone linked to the energy risk had strengthened safe-haven flows, amid fears the European Central Bank (ECB) would be more cautious in its rate hike decisions.

The “window of opportunity for ECB rate hikes could be short lived, and the euro could be faced with fresh headwinds”, she said.

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The ECB is expected to raise interest rates in July for the first time in a decade to try to cool accelerating inflation, though economists are divided on the magnitude of any hike amid risks that a rising cost of borrowing could damage more the economy.

French inflation climbed to a record high of 6.5 per cent in June, adding headwinds to the eurozone’s second-biggest economy.

Speaking on Wednesday at the ECB’s annual conference in Sintra, Portugal, ECB president Christine Lagarde and US Federal Reserve chair Jerome Powell said it was important to bring down inflation, even if it meant economic pain.

The US dollar remained on the front foot against other majors, with sterling hunkered down 0.2 per cent at US$1.2149, with losses this week leaving it set for a 3.6 per cent monthly decline.

The US dollar also traded just below a fresh a 24-year peak of 137 Japanese yen touched on Wednesday, as the gap between a hawkish Fed and a dovish Bank of Japan continues to weigh heavily on the yen, which was last trading at 136.1 yen .

Bitcoin dipped back below the symbolic US$20,000 level on persistent market ructions, and was also hurt by the US Securities and Exchange rejecting a proposal to list a spot bitcoin exchange-traded fund by digital asset manager Grayscale. REUTERS