Pound Swedish Krona (GBP/SEK) Exchange Rate Firms on Swedish Economic Woes
(UPDATED 29/6/23, 16:30)
The Pound Swedish Krona (GBP/SEK) exchange rate is strengthening after SEK investors digested the latest interest rate decision from the Riksbank. Despite opting to hike 25bps, the shaky Swedish economy appears to be weighing heavily. Economists at Société Générale are wary of persistent inflationary pressures in Sweden:
‘The forecast is for the policy rate to be increased at least one more time this year. Inflation is falling but is still far too high. Service prices, like in many other developed economies, are rising unexpectedly rapidly and a weaker Krona, indicates that inflation is declining more slowly than expected.’
At time of writing the GBP/SEK exchange rate is trading around SEK 13.6863, a 0.34% fall from the morning’s opening levels.
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GBP/SEK Exchange Rate Fluctuates as Riksbank Raises Rates by 25bps
The Pound Swedish Krona exchange rate is trading erratically this morning. The Riksbank opted to raise interest rates to 3.75% and left the door open for further tightening.
At time of writing the GBP/SEK exchange rate is trading around SEK 13.615, relatively unchanged from the morning’s opening levels.
Swedish Krona (SEK) Supported by Prospects of Further Tightening
The Swedish Krona (SEK) initially spiked after the Riksbank opted to raise the interest rates for the seventh consecutive time. Bringing the key policy rate to 3.75%, borrowing costs have now hit a fresh 15-year high. Meeting expectations of a 25bps rate hike, the central bank said in a statement:
‘Inflation is falling but is still far too high. New information, such as service prices rising unexpectedly rapidly and a weaker krona, indicates that inflation is declining more slowly than expected.’
Furthermore, Swedish policymakers conceded that inflation is finally falling but remains stubbornly high. They also stressed that further tightening will be required. Lending support to the Swedish Krona is that the central bank forecasts at least one more rate hike by the end of the year, adding:
‘For inflation to return to the target of 2% within a reasonable period of time, monetary policy needs to be tightened further. The forecast is for the policy rate to be increased at least one more time this year.’
In another move to boost the stuttering Swedish economy, the Riksbank decided to expand the sales of government bonds from SEK 3.5bn to SEK 5bn. The move is hoping to strengthen the Krona and help the Riksbank in reducing inflation further.
Pound (GBP) Undermined by Bleak Economic Outlook
Meanwhile, the Pound (GBP) is struggling to garner much demand this morning amid a lack of economic data. Fears of a looming recession are keeping a firm lid on Sterling despite hawkish rhetoric from the Bank of England (BoE).
Speaking at the European Central Bank (ECB) Forum on Central Banking, Bank of England (BoE) Governor Andrew Bailey noted persistent inflation and pledged commitment to bringing it back down. With headline CPI remaining the highest of the G7 countries, inflation is still far above the BoE target rate of 2%. Bailey hinted at further rate hikes:
‘Data has shown clear signs of persistent inflation, (we would do) what is necessary to get inflation to target.
‘The market thinks we’re nearly done at the moment. They’ve got a number of further increases priced in for us. My response to that would be, well, we’ll see.’
Mounting concerns that rampant tightening could tip the UK into a recession has spooked GBP investors, and Sterling remains under pressure.
Pound Krona Forecast: UK Recession Fears to Sink the Pound?
Looking ahead, a lack of major economic data could leave the Pound Swedish Krona exchange rate exposed to market sentiment. Ongoing concerns surrounding the shaky UK economy could keep Sterling pressured heading into the weekend.
Elsewhere, final UK GDP growth readings could inspire movement if the figures differ from their preliminaries. An expected 0.1% expansion in Q1 would mark the second consecutive quarterly growth.
Meanwhile, the Swedish Krona will continue to trade on market sentiment as investors continue to digest the latest monetary policy decision.