Rising Odds of No-Deal Brexit Stoke Pound Swedish Krona (GBP/SEK) Exchange Rate Losses
News that the EU is preparing to initiate legal action against the UK in response to the controversial internal market bill saw the Pound to Swedish Krona (GBP/SEK) exchange rate slump sharply.
This report punctured the sense of market optimism that had helped to shore up Pound Sterling (GBP) earlier in the week, with hopes of an imminent Brexit deal fading.
As UK-EU talks failed to deliver the hoped for breakthrough the prospect of a no-deal scenario appeared to pick up significantly, leaving GBP exchange rates on the back foot.
With the UK economy already showing signs of slowing in the wake of its initial post-lockdown recovery this stoked fears of a greater deterioration in economic activity to come.
A surprise downward revision to the finalised UK manufacturing PMI for September added to the bearish mood this morning.
Swedish Krona Strengthens in Spite of Dovish Riksbank Meeting Minutes
Although the Riksbank’s latest set of meeting minutes indicated that the central bank remains willing to offer further monetary stimulus if the economic recovery falters this failed to weigh on the Swedish Krona (SEK).
While interest rates are already sitting in negative territory markets were not spooked by the prospect of further action, in spite of the minutes noting that:
‘Several members pointed out that the scope for cutting the policy rate is limited but that such a measure cannot be ruled out.’
Even so, with September’s Swedish manufacturing PMI picking up further than forecast on the month worries over the economic outlook temporarily diminished, bolstering the Krona.
GBP/SEK Exchange Rate to Remain on Back Foot as Brexit Speculation Dominates
Anxiety over Brexit looks set to dominate the outlook of GBP exchange rates for the foreseeable future, with fears of a no-deal scenario weighing on investor sentiment.
As long as the UK economy looks set to face even greater negative headwinds in the final months of the year support for the Pound may weaken further.
The GBP/SEK exchange rate could also falter on the back of the finalised UK services PMI, with markets wary of the potential for another negative revision.
Unless the service sector can demonstrate greater signs of resilience in the face of Covid-19 anxiety and Brexit-based uncertainty this could drive the Pound to fresh lows against its rivals.
Softer Swedish Services PMI Set to Limit Krona Strength
However, the mood towards the Krona could sour on Monday as forecasts point towards a weakening in the last Swedish services PMI.
If the index softens from 56.6 to 54 on the month as anticipated this may give investors renewed reason to sell out of the Krona.
On the other hand, another positive surprise from the service sector could see the GBP/SEK exchange rate coming under greater pressure.
Nevertheless, a fresh surge in global anxiety over the Covid-19 crisis may still put a dampener on the Swedish Krona in the days ahead.