Sweden’s Krona Sinks After Deflation Shock: Stockholm Mover

Sweden’s krona sank after a report showed consumer prices declined more than most economists had predicted.

The krona dropped as much as 0.7 percent against the euro and traded at 8.6352 as of 10:00 a.m. in Stockholm. The loss sent the krona to its lowest since April 23, leaving it the worst performer of the 16 major currencies tracked by Bloomberg against the euro, the dollar and the yen.

“We definitely got a bit of a surprise in the inflation numbers and the market now has to price in a higher probability of a cut by the Riksbank,” Kasper Kirkegaard, a senior currency strategist at Danske Bank A/S in Copenhagen, said by telephone. “All-in-all, the move in the krona seems fair.”

Consumer prices dropped an annual 0.5 percent in April, more than the 0.2 percent decline foreseen in a Bloomberg survey of economists. It was the lowest reading in the headline inflation gauge since November 2009. The result will probably prompt the central bank to lower its main rate from 1 percent to 0.75 percent at its next meeting in July, according to SEB AB.

“We continue to see lower inflation in 2014, also after the substantial downward revision” said Olle Holmgren, an analyst at SEB AB in Stockholm, in a note to clients.

Sweden’s central bank last month delayed plans for monetary tightening after cutting its inflation forecasts, citing the strong krona and companies’ inability to pass on price increases. The bank signaled it’s likely to keep the repo rate at 1 percent until the second half of 2014. The krona had gained 5.1 percent against the euro in the year through yesterday.

To contact the reporter on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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