Pound Sterling Swedish Krona (GBP/SEK) Exchange Rate Muted as UK Monetary Policy Reaches ‘The End of The Line’
The Pound Sterling Swedish Krona (GBP/SEK) exchange rate was left largely flat this morning. This left the pairing trading at around 11.7808Kr.
The Pound was left flat on reports that Brexit talks between the UK and EU had reached an impasse.
Sterling suffered after Britain told the European Union it still needed to break a fundamental impasse to be able to reach a trade deal by the end of the year.
The Times reported that Brexit talks will resume in person in Brussels next month.
Downbeat reports of post-Brexit discussions, the possibility of negative interest rates in the UK, a severe recession and increasing debt has left Sterling at its lowest levels in more than three decades.
On Wednesday, the Bank of England’s (BoE) Governor, Andrew Bailey said the bank was correct to consider taking rates into negative territory to give the economy a boost. Although he also noted that the bank would need to give careful thought to the side-effects of negative interest rates.
In a note to clients, Commerzbank’s head of FX and commodity research, Ulrich Leuchtmann wrote:
‘The question whether the BoE key rate is slightly above or below zero does not really matter.
‘Monetary policy in the UK – just like almost everywhere else in the world – has pretty much reached the end of the line.’
Swedish Krona (SEK) Flat on Downbeat Retail Sales
The Swedish Krona remained flat on Thursday following downbeat retail sales data. Sales slumped by -1.3% in April compared to a year earlier.
Month-on-month, sales increased by 0.2% in April, improving from March’s slump of -1.5%. This offered the Krona some support as economists predicted sales to slump by over 2%.
Added to this, both Swedish consumer and business confidence improved in May, leaving the pairing muted.
Business confidence improved from 55.1 in April to 58.2 while consumer sentiment rose from 73.9 to 77.3.
Pound (GBP) Flat as Covid-19 Causes ‘Huge Slowdown’ in Labour Market
Meanwhile, Sterling was offered some support today as employers were less pessimistic about hiring and investment this month.
Sentiment improved as Boris Johnson’s government began to ease coronavirus lockdown restrictions across much of the economy.
While the Recruitment & Employment Confederation’s Business confidence measure remained in negative territory, the index rose from -21 in April to -10.
According to REC chief executive, Neil Carberry:
‘Coronavirus has caused a huge slowdown in the labour market, but this data indicates that the worst could be behind us.’
While this offered GBP some support, gains were limited as separately, the Institute of Directors said a quarter of its member firms using the furlough scheme would struggle to contribute to the salaries of their workers from August.
This raised the prospect of further job losses in August, and according to IoD Director General Jonathan Geldart:
‘Business leaders know that the government’s support can’t be infinite but the ugly truth is that if there’s no money coming in the door many firms will be forced to make difficult decisions.’
The survey showed that of 697 company directors, around half of those could provide 20% or more towards furloughed workers’ salaries between August and October.
Traders will be awaiting announcements in the coming days from Finance Minister, Rishi Sunak. The chancellor is set to announce how much companies will have to contribute. So far the government’s scheme has cost around £15 billion.
Pound Swedish Krona Outlook: Swedish GDP in Focus
Looking ahead, the Swedish Krona (SEK) could extend its losses against the Pound (GBP) following the release of growth data.
If Sweden’s growth contracts more than expected in the first three months of 2020, it will dampen Krona sentiment.
However, Sterling gains could be limited following the release of April’s annual British car production.
If car production plummets further than forecast in April, showing the damage caused by the coronavirus pandemic, the Pound Swedish Krona (GBP/SEK) exchange rate will be left flat.