Riksbank's calm over inflation hurts Swedish krona

London

THE Swedish krona was hurt by the Riksbank's dovish stance on Thursday (Feb 10), while other currency market moves were small as investors awaited key data on US inflation for clues on the US Federal Reserve's policy-tightening trajectory.

Investors' appetite for riskier assets has been hurt so far this year by expectations that the Federal Reserve will begin tightening monetary policy, starting with a rate hike at its March meeting.

Strong earnings helped global stocks rise on Wednesday, but they struggled to maintain this momentum during the Asian and early European sessions on Thursday.

Sweden's central bank took a dovish stance, keeping its monetary policy plans broadly unchanged and stressing its view that surging inflation is temporary.

The Swedish krona fell. The US dollar was up 0.9 per cent against the krona at 1158 GMT, a 1-week high. The euro was also up 0.9 per cent against the krona, at 10.509, a 10-day high.

Last week, the European Central Bank surprised investors by appearing more concerned about inflation and more willing to tighten monetary policy, prompting euro-dollar to jump to a 3-week high of US$1.1483.

At 1202 on Thursday, the euro-dollar was up 0.1 per cent on the day at US$1.1432.

The dollar index was little changed at 95.543. After large swings in the previous 2 weeks, it was on track for a minimal weekly change so far this week.

The Japanese yen hit a 1-month low versus the dollar. The currency showed little reaction to the Bank of Japan saying that it would intervene in markets by offering to buy an unlimited amount of 10-year Japanese government bonds at 0.25 per cent.

Markets were focused on US inflation data due later in the session. The headline consumer price index is expected to have increased more than 7 per cent in January, year-on-year, a level reminiscent of the inflation shocks of the 1970s and 1980s. Investors are pricing in a 70.5 per cent chance of the Fed hiking rates by 25 basis points (bps) at its March meeting, with a 29.5 per cent chance of a 50 bps raise.

The Australian dollar, which is seen as a liquid proxy for risk appetite, was up 0.3 per cent at US$0.72025, while the New Zealand dollar was also a touch higher. REUTERS