Easing Isn't Easy in Sweden as Krona Climbs After Stimulus Boost

  • Nordic currency rallies to two-week high against the euro
  • Central bank seeks gradual strengthening in line with forecast

The currency trader playbook says that when a central bank eases, that nation’s currency should weaken.

Not so in Sweden on Wednesday, where the krona climbed versus all of its major peers after the nation’s Riksbank boosted bond-buying amid talk of additional easing from the European Central Bank.  The currency strengthened because policy makers didn’t increase the probability of a rate cut by year-end, and indicated a slower pace of debt purchases in their extended program, Citigroup Inc. wrote in a note to clients.

“Today, above all, reinforces the range in euro-stokkie,” Josh O’Byrne, a London-based currency strategist at Citigroup, said by phone, using the Swedish currency’s nickname. “Markets lost a bit of confidence in the call for roughly an 80 percent chance of a rate cut by year-end. It is about 40 to 50 percent now.”

Sweden's krona advanced versus its major peers

The krona added 0.8 percent to 9.3192 per euro as of 12:11 p.m. in New York, after touching 9.3142, its strongest since Oct. 15. Sweden’s currency advanced 1 percent to 8.4179 per dollar.

Sweden’s decision to ease belies signs of recovery in Scandinavia’s largest economy. Consumer prices rose the most in seven months in September, with policy makers saying Wednesday that the trend of rising inflation is expected to continue, even as they revised down their forecast.

The Riksbank added 65 billion kronor ($7.7 billion) to its program of quantitative easing while holding the benchmark repo rate at minus 0.35 percent. Rates won’t start to move higher until 2017.

"Despite the larger-than-expected QE expansion and dovish revisions to the repo rate, the SEK strengthened as markets continue to question the need for additional monetary policy stimulus by the Riksbank due to solid domestic fundamentals, the recent meaningful uptick in inflation and inflation expectations and the currency’s undervaluation,” Nikolaos Sgouropoulos, a London-based foreign-exchange strategist at Barclays Plc wrote in a note.

The Riksbank sees gradual appreciation by the krona, but wants strengthening to follow its forecasts, Governor Stefan Ingves said Wednesday. The central bank forecast in September that a trade-weighted measure of its currency would climb about 3 percent over the next 12 months.

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