USD/SEK: Swedish krone cools ahead of Riksbank interest rate decision

USD/SEK: Swedish krone cools ahead of Riksbank interest rate decision
  • The USD/SEK pair is little changed today as Riksbank starts its monetary policy meeting.
  • Analysts expects the Swedish central bank will leave interest rates unchanged and possibly boost QE.
  • Others see the bank following Norges Bank footsteps and predict future rate hikes.

The USD/SEK pair is little changed ahead of the Riksbank interest rate decision. The pair is trading at 9.3333, which is below the June high of 9.4772 and above the low of 9.1290.

USDSEK
USD/SEK 3-month surprise

Riksbank interest rate decision eyed

The Swedish central bank will be the “only game in town” this week. Members of its monetary policy committee will start their meeting today and release their decision tomorrow.

Most analysts expect the bank to leave interest rates unchanged at zero and possibly expand its quantitative easing program. That is according to a poll of economists polled by Reuters yesterday.

If it does this, the Swedish central bank will be in good company. In June, the Bank of Japan, Bank of England, and the European Central Bank(ECB)decided to leave rates unchanged and expand QE. The BOE expanded its purchases by £100 billion while the ECB added €600 billion to its QE program. Most analysts see the bank adding 200 billion SEK into its original program, bringing the total to SEK 500 billion.

Analysts at SEB Bank believe that the bank will attempt to sound dovish in its bid to weaken the Swedish krone. The currency has gained almost eight per cent against the dollar in the past three months.

“In order to avoid the SEK strengthening too much and too fast, we expect the Riksbank to copy the ECB’s latest rate decision and present an extension of the QE programme from the end of this year to mid-2021.”

Other analysts expect the bank to signal that a rate cut is possible. If it implements negative rates, it would be a surprise to the market because it moved from the negative territory in December last year. Still, analysts at ING believe that the bank could follow the footsteps of Norges Bank. They said:

“There is an outside risk that the Riksbank will follow the Norges Bank and pencil in a modest hike at the end of the forecast horizon.”

The decision comes as Sweden goes through its worst recession since the second world war. Analysts expect the economy to contract by about 7% this year despite the country not implementing a lockdown. Also, 40% of companies in the country are expected to go out of business.

USD/SEK technical analysis

USD/SEK
USD/SEK technical forecast

The USD/SEK pair is trading at 9.3333. On the daily chart, the price is trading below the 50-day and 100-day exponential moving averages. Also, the price is below the 23.6% Fibonacci retracement level. Most importantly, it is forming a bearish pennant pattern. This implies that the pair is likely to continue falling as bears attempt to test the low of 9.1317. On the flip side, a move above 9.4791 will invalidate this prediction because it will signal that there are more buyers in the market.

By Crispus Nyaga
Crispus Nyaga is a finance analyst and trader with more than 7 years industry experience. He's contributed to some of the leading financial brands in the world including Seeking Alpha, MarketWatch, Forbes, and Investing.com. Crispus has an excellent understanding of global macroeconomic and geopolitical issues, is a big fan of golf, and lives in Nairobi with his wife, son, and nephew.
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