Sweden’s Riksbank hikes rates 100bps, but the Krona doesn’t care!

Earlier today, Sweden’s Riksbank surprised markets by hiking rates 100bps to bring the overnight rate to 1.75%, rather than the expected increase of 75bps. This follows increases of 25bps on April 28^th, which brought rates to 0.25%, and a hike of 75bps on June 30^th, which brought the rate to 1.00%. Sweden’s CPI reading for August was 9.8% YoY, up from 8.5% YoY in July. This was the highest level since June 1991. Central Bank members said they would continue to raise rates for the next six months in order to fight inflation. The Riksbank also increased its inflation forecast to 8.6% for 2022 and 8.5% for 2023. It expects inflation to normalize at the 2% target by 2025. In addition, the Riksbank expects GDP to rise by 2.7% in 2022, but only 0.7% in 2023.

What is inflation?

Despite the higher than expected increase in rates by the Riksbank, it failed to spark a bounce in the Krona, as USD/SEK approached its highest level since 2001. USD/SEK has been trading in an orderly upward sloping channel since June 2021 when the pair was near 8.2354. On July 5^th, 2022, the pair traded through the pandemic high from March 2020 near 10.5016. However, it was short-lived as USD/SEK bounced off the top trendline and moved lower to test the bottom trendline of the channel on August 11^th. Since then, the pair has been moving aggressively higher back towards the top trendline of the channel. In addition, today’s price action formed a bullish engulfing candlestick as the pair went to new highs. However, notice that the RSI is diverging from price, making 3 higher highs in price and 3 lower highs in the RSI. This is often viewed as a possible reversal signal.

Source: Tradingview, Stone X

Trade USD/SEK now: Login or Open a new account!

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore

On a 240-minute timeframe, if USD/SEK continues to move higher, the first level of resistance is at the 127.2% Fibonacci extension from the highs of September 5^th to the lows of September 13^th near 11.0161. Above there, price can run to the top trendline of the long-term channel near 11.1140 and then the 161.8% Fibonacci extension from the previously mentioned timeframe at 11.1800. However, if the potential reversal signal on the daily timeframe plays out, the first support is at today’s lows of 10.6737, then the lows of September 13^th at 10.4137. Below there is horizontal support at 10.267, just ahead of the bottom trendline of the long-term channel.

Source: Tradingview, Stone X

The Riksbank feels like it got burnt one to many times by not raising interest rates enough. Therefore, it raised rates by 100bps today and said there is more to come. In addition, the central bank revised its inflation forecast higher and said it would take until 2025 for it returns to 2%. However, USD/SEK did not care, trading to its highest level in over 20 years!

Learn more about forex trading opportunities.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.