USD/SEK inches lower as Riksbank interest rate decision; boosts QE
- The USD/SEK declined slightly after Riksbank interest rate decision.
- The bank left interest rate unchanged at zero and boosted its QE program by 200 billion SEK.
- The bank also joined other central banks in starting to buy corporate bonds in its bid to boost liquidity.
The USD/SEK pair declined slightly today as investors react to the Riksbank interest rate decision. The pair is trading at 9.3160, which is between the June high of 9.4758 and low of 9.1293. The EUR/SEK pair, on the other hand, is trading at 10.4535.
Riksbank interest rate decision
The Swedish central bank left interest rate unchanged at the current rate of 0% after its two-day meeting. That was in line with what most analysts were expecting.
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The main change to the monetary policy decision was that the bank would increase its quantitative easing program from the previous SEK 300 billion to SEK 500 billion. This was in line with what some analysts had predicted.
By increasing the QE, Riksbank is in good company. Central banks like the European Central Bank (ECB), Bank of England (BOE), and Bank of Japan (BOJ) also added more money to their programs. It will make these purchases until June next year.
Another change in the statement is that the bank will expand the scope of the QE to include corporate bonds. This is in line with other central banks are doing in their bid to shore liquidity in the market. For example, the ECB and BOJ are now buying bonds from the so-called “fallen angels.” Also, the bank decided to cut interest rates and extend maturities for the funding it provides to banks.
The bank now expects the economy to contract by 4.5% this year, which is a sharp contract to its previous forecast of 1.3% growth. It then expects the economy to rebound by 3.6% in 2021, 4.1% in 2022, and 2.9% in 2023. It then expects the headline CPI to rise by 0.5% this year and by 1.4% in 2021 and 2022, and 1.9% in 2023 as shown below. Similarly, the bank expects to leave interest rates unchanged until the third quarter of 2022.
In a statement, the bank said:
“The Swedish economy is also being substantially affected by the crisis, which is evident not least in the labour market, where unemployment is expected to continue to rise. Even if the economy gradually recovers in the coming years, it will take some time before resource utilisation in the Swedish economy, as in other countries, is back at more normal levels.”
Sweden economy improving
The Riksbank interest rate decision came even as data showed that the economy was improving. In a release earlier today, Silf Bank and Swedbank said that the manufacturing PMI rose to 47.3 in June, up by 7.3 points from the performance in May. That meant that some of the weakness experienced during the Spring season had been gained. This PMI was the highest it has been since February this year.
According to the report, the progress was mostly because of order intake and production. It was offset by delivery times and supply issues. The report said:
“The manufacturing industry’s production plans for the next six months became more optimistic in June and the index rose to 49.9 from 39.5 in May. Since the bottom level in April, the index has risen by 26 index units, which is a positive cyclical signal.”
Earlier today, data from China and Australia showed that manufacturing activity rebounded in June. The same is true with the PMI in Germany and the eurozone.
USD/SEK technical analysis
The USD/SEK pair is trading at 9.3182. On the daily chart, this price is below the 50-day and 100-day exponential moving averages. Also, we see that the pair found some resistance at the 23.6% retracement level in June. Most importantly, the price is forming a pennant pattern, which is usually a sign of indecision in the market. Therefore, this means that the pair is likely to breakout in either direction. This will likely happen after the US releases the June nonfarm payrolls numbers.