Central bank decisions on interest rates generally increase emotions in the currency market. This is also the case this time, especially since the decision will be made by Riksbank — the central bank of Sweden, whose currency has recently weakened to levels that have not been observed for years.
The Swedish krona in relation to the US dollar (USD/SEK) weakened in October this year to an unseen level since 2002. In turn, in relation to the euro (EUR/SEK), the koruna was the weakest since 2009. The Central Bank of Sweden only recently trying to start the process of normalizing monetary policy because from the beginning of 2016 to the end of 2018 the main interest rate was at -0.5 percent. In December 2018, it was raised to -0.25 percent. Riksbank, like the bank of Norway, was to be a bank that was one of the few promises to raise interest rates. However, the global economic slowdown and the dovish attitude of the Fed or the ECB eased this bias.
The statement from the previous meeting of Riksbank stated that the interest rate should be raised at the end of the year or early next year, but at a slower pace than in the previous forecast due to deterioration of moods and low-interest rates abroad. Well, maintaining this statement after the Thursday meeting may be beneficial for SEK in the short term, especially given the low value of the Swedish krona.
Expected one-day volatility for the EUR/SEK pair before the decision raised to the highest level since December, which only shows how important the meeting will be. Mainly investors are wondering whether the hawkish statement will be maintained or whether Riksbank will resign from it. There are also voices on the market that the SEK may weaken by a few percent more by the end of the year because the central bank will even have to cut interest rates due to the worsening economic situation in the country.
The central bank decision in Sweden regarding interest rates will take place on Thursday, October 24 at 9:30.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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