Swedish crown jumps after central bank keeps rates unchanged

The Swedish crown climbed to a six-week high against the euro after its central bank held interest rates steady.

The Riksbank held its benchmark rate unchanged at 0 per cent, as expected, making no major changes to the package of measures it has launched to cushion the blow from the coronavirus outbreak on the economy, but said it was ready to do more if needed.

The crown rose as much as 0.5 per cent against the euro to 10.7815, its highest since mid-March. Against the dollar it jumped 0.7 per cent to a two-week high, and was last trading at 9.9565.

Unlike the majority of central banks around the world, the Riksbank has held its benchmark rate unchanged, arguing that it is better to focus on credit supply and to counteract a rise in interest rates to households and companies.

The Swedish currency, the major mover, held steady on Tuesday as investors bided time ahead of policy meetings by the US Federal Reserve and European Central Bank later this week, with a fresh fall in oil prices also subduing riskier bets.

The greenback was a tad softer against a basket of currencies at 99.970 - around where it has been parked for the last month. It was weaker against the yen at 107.055 yen per dollar and flat against the euro at $1.08697.

A 5 per cent drop in benchmark Brent crude and a 20 per cent drop in US crude offered ill omens for global demand.

Markets are looking for any forward guidance from the Fed, which meets later on Tuesday and is due to issue a statement on Wednesday. The European Central Bank meets on Thursday.

The Fed has led the global monetary policy response to the coronavirus pandemic by cutting interest rates to zero and aggressively buying bonds and corporate credit - a programme it extended overnight to include municipal debt of smaller US cities.

Analysts said it was unlikely that the Fed would make further major policy moves, given the scope and depth of recent action to counter the economic damage caused by Covid-19.

“The major central banks are at comparatively expansionary levels. All of them have beefed up asset purchases as much as they could. All of them are close to or even at the minimum lower interest rate bound,” wrote Thu Lan Nguyen, an analyst at Commerzbank.

“They are likely to remain there for the foreseeable future, which would point towards relatively stable exchange rates.”

The ECB has had less room to manoeuvre on rates and announced an enormous bond-buying programme. Still, bickering and indecision over a eurozone rescue package has some in the market expecting deeper action still, perhaps as soon as Thursday.

That has seen the euro left behind as expectations for an economic recovery from the pandemic has pressured the US dollar and driven a rally in riskier currencies such as the Australian dollar.

Still, the fresh fall in oil put the brakes on the charging Aussie, which had climbed more than 1 per cent earlier and has recovered nearly a fifth from a 17-year low struck last month.

Elsewhere the pound gained 0.3 per cent to $1.2456, having earlier been pressured after Prime Minister Boris Johnson warned it was too dangerous to relax a strict lockdown in Britain.

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