Riksbanken rate hike lifts Swedish crown

The Swedish crown rose on Thursday against the euro after Swedens central bank hiked its benchmark interest rate by 50 basis points as expected.

In the meantime, the euro flattened against most peers, remaining close to a fresh 2015-low versus the Swiss franc and near a two-week low against the U.S. dollar, amid safe-haven demand on renewed worries about higher rates and a global recession.

The Swedish crown was up 0.1% against the euro at 10.6810 at 0830 GMT after briefly jumping 0.4% against the euro to 10.6410 following Swedens Riksbanken rate hike to 0.75%.

Jesper Petersen, FX analyst at Danske Bank said the kneejerk reaction on SEK-crosses would likely fade as the Riksbank signalled more aggressive hikes during rest of 2022 “however, from 2023 and beyond the new rate path was somewhat lower than we expected the Riksbank to present today”.

The common currency was set for its worst quarter against the dollar since the end of 2016, on track for a 5.6% quarterly decline.

It was 0.1% lower on the day versus the dollar at $1.0434, after losing 0.75% on the dollar on Wednesday.

It also dropped to a fresh 7-1/2-year low versus the safe-haven Swiss franc at 0.9964 francs, with still basking in the afterglow of the Swiss National Banks surprise rate hike two weeks ago.

Jane Foley, head of FX Strategy at Rabobank London, said rising concerns around recession in the euro zone linked to the energy risk had strengthen safe haven flows, amid fears the European Central Bank would be more cautious in its rate hike decisions.

The “window of opportunity for ECB rate hikes could be short lived and the euro could be faced with fresh headwinds”, she said.

The ECB is expected to raise interest rates in July for the first time in a decade to try to cool accelerating inflation, though economists are divided on the magnitude of any hike amid risks that a rising cost of borrowing could damage more the economy.

French inflation climbed to a record high of 6.5% in June, adding headwinds to the euro zones second-biggest economy.

Speaking on Wednesday at the ECBs annual conference in Sintra, Portugal, ECB President Christine Lagarde and U.S. Federal Reserve Chair Jerome Powell said it was important to bring down inflation, even if it meant economic pain.

The dollar remained on the front foot against other majors, with sterling hunkered down 0.2% at $1.2149, with losses this week leaving it set for a 3.6% monthly decline.

The dollar also traded just below a fresh a 24-year peak of 137 Japanese yen touched on Wednesday, as the gap between a hawkish Fed and a dovish Bank of Japan continues to weigh heavily on the yen, which was last trading at 136.1 yen .

Bitcoin dipped back below the symbolic $20,000 level on persistent market ructions, and was also hurt by the U.S. Securities and Exchange rejecting a proposal to list a spot bitcoin exchange-traded fund by digital asset manager Grayscale.