Krona Drops as Weak Euro-Area Data Weighs on Swedish Outlook

Sweden’s krona slid the most in four weeks versus the dollar as investors bet euro-area inflation at the slowest in almost four years will weigh on the Swedish economy and prompt the central bank to cut interest rates.

The currency dropped against all except one of its 16 major counterparts after a European Union estimate showed the annual rate of inflation in the 17-nation region fell to 0.7 percent, the lowest since November 2009. Riksbank policy makers have held their benchmark rate at 1 percent since December, while the European Central Bank cut its key refinancing rate to a record-low 0.5 percent in May.

“What the market is concluding is that if you have low inflation in the euro zone then you’ll see the same pattern in Sweden,” said Arne Lohmann Rasmussen, head of foreign-exchange research at Danske Bank in Copenhagen. “It could put further pressure on the Riksbank to actually cut rates and that will have a market impact that’s much bigger than the refi rate cut from the ECB.”

The krona tumbled 1.2 percent to 6.4697 per dollar as of 4:14 p.m. London time, the steepest decline since Oct. 4. Sweden’s currency fell 0.2 percent to 8.7941 per euro after depreciating to 8.8194, the weakest level since Oct. 10.

The Swedish currency has tumbled 0.8 percent over the past week, the worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 1.2 percent, while the euro declined 0.5 percent.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net.

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