Riksbank’s Surprise Interest Rate Hike: Pound Sterling to Swedish Krona (GBP/SEK) Exchange Rate Slumps

Surprise Riksbank Interest Rate Hike Drives Pound Sterling Swedish Krona (GBP/SEK) Exchange Rate Lower

The Swedish Krona (SEK) surged higher across the board this morning after the Riksbank delivered a surprise interest rate hike.

Markets were caught off guard by the central bank’s decision to raise interest rates for the first time in seven years, giving SEK exchange rates a significant boost.

While the interest rate remains within negative territory at -0.25% this increase still gave investors incentive to pile into the Krona as the Riksbank moves closer to normalising monetary policy.

Policymakers cited the low unemployment rate as a motive for the move, in spite of the increasing sense of uncertainty clouding the global growth outlook.

Following the hike, the GBP/SEK exchange rate was down around 1%, at an inter-bank rate of 11.36KR.

Bank of England (BoE) Caution Weighs Down Pound Sterling (GBP) Exchange Rates

The Pound Sterling to Swedish Krona (GBP/SEK) exchange rate came under additional pressure in the wake of the Bank of England’s (BoE) December policy announcement.

Although the decision to leave interest rates on hold was widely anticipated the tone of policymakers leaned towards greater dovishness.

As the BoE highlighted the intensifying state of uncertainty over Brexit in its meeting minutes demand for Pound Sterling (GBP) naturally soured.

With Brexit jitters looking set to keep the BoE on hold for some months to come GBP exchange rates were left on a weaker footing today.

GBP/SEK Exchange Rate Vulnerable to Evidence of Underwhelming UK Growth

Further weakness could be in store for the Pound on Friday with the release of November’s UK public sector net borrowing figure and finalised third quarter gross domestic product data.

Any fresh signs of softness within the economy are likely to weigh heavily on the GBP/SEK exchange rate, extending its downtrend.

The underlying details of the gross domestic product report may give investors reason to sell out of the Pound if momentum shows signs of stalling.

Unless the economy shows evidence of shaking off market worries over Brexit the Pound could struggle to find any particular traction ahead of the weekend.

As long as a sense of political uncertainty hangs over the UK the upside potential of the GBK/SEK exchange rate looks set to remain limited.

Retail Sales Rebound to Support Swedish Krona (SEK) Exchange Rates

The Swedish Krona could find a fresh boost, meanwhile, if November’s retail sales data picks up as forecast.

After the sharp contraction of -1.1% in month-on-month sales in November investors are hoping to see a solid rebound as consumers began to prepare for Christmas.

Another month of weak sales growth, however, could reignite worries over the health of the Swedish economy and reverse at least some of the recent gains of SEK exchange rates.

A general deterioration in market risk appetite may also drag down the Krona in the days ahead as the prospect of a slowing global economy weighs on the minds of investors.

Hannah Wilson

Contact Hannah Wilson