USD/SEK sinks as signs of Fed and Riksbank divergence emerge

The USD/SEK exchange rate has plunged hard this week. It has dropped in the past seven straight days and moved to the lowest level since May 10th. The pair has crashed by more than 7.21% from the highest level in June.

Sweden consumer inflation rises

The USD/SEK continued crashing after the latest US consumer price index (CPI) data. According to the Bureau of Labor Statistics (BLS), the headline inflation dropped from 4.1% in May to 3.0% in June. 

Core inflation dropped from 5.1% in May to 4.8% in June. Therefore, there is a likelihood that inflation will continue to fall in the coming months. Analysts see inflation moving to the Fed’s target of 2.0% in the next few months. 

The implication of this is that the Fed will decide to pause interest rate hikes after raising by 0.25% in June. Besides, last week’s non-farm payrolls (NFP) data showed that the labor market continued softening.

The other SEK news came out on Friday when Sweden published the latest inflation data. According to the statistics agency, the headline consumer price index rose from 0.3% in May to 1.1% in June. Economists were expecting the data to show that inflation jumped to 0.8%.

This increase translated to a year-on-year increase of 9.3%, higher than the median estimate of 9.1%. CPI at constant interest rates rose by 6.4% on a YoY basis. These inflation numbers mean that the Riksbank’s target of 2.0%.

Therefore, there is a likelihood that the Riksbank will continue hiking rates in the next few meetings. The bank hiked interest rates by 0.25% to 3.75%. It has hiked rates from 0.25% in April 2022.

USD/SEK technical analysis

USDSEK chart by TradingView

The USD to SEK exchange rate continued falling this week. It moved below the important support level at 10.56, the lowest level on June 19th. At the same time, the pair has moved below the 25-day and 50-day moving averages. It formed a triple-top pattern at ~11. In price action analysis, this pattern is usually a bearish sign.

The USD/SEK pair has moved below the Ichimoku cloud pattern. It has moved below the Relative Strength Index (RSI) and the Stochastic Oscillator have moved to the oversold level. Therefore, the pair will likely continue falling as sellers target the key support at 10.