The Swedish crown jumped against the dollar and euro on Tuesday after the central bank held interest rates steady and maintained stimulus measures designed to support an economy battered by the coronavirus pandemic.
The crown rose 1.2% against the dollar to 9.911, a two-week high, and 0.6% against the euro to 10.7905, its highest since mid-March.
With Sweden facing its worst downturn since World War Two, investors had watched closely for any sign the Riksbank would push rates back below zero after it became the first central bank to ditch a negative interest rate policy late last year.
But the Riksbank left its benchmark rate at 0%, as expected, with its governor saying a rate cut would not solve Sweden's economic problems.
Unlike the majority of central banks around the world during the coronavirus pandemic, it has argued it is better to focus on credit supply and counteract a rise in interest rates to households and companies.
“It's hard not to see this as a bit hawkish – you'd think that if they didn't cut rates now, when would they cut?" said Morten Lund, FX strategist at Nordea, adding that he expected rates to remain steady this year and next.
The Swedish currency was the major mover on Tuesday, with investors turning their attention to policy meetings by the US Federal Reserve and European Central Bank later this week.
Appetite for riskier currencies, earlier subdued by a fresh fall in oil prices, picked up through morning trading.
By shortly before noon, the greenback was softer against a basket of currencies, falling 0.5% to 99.970 – its lowest in a week. It was also down by a similar amount against the yen at 106.705 yen per dollar.
As oil steadied somewhat from its latest plunge – Brent crude turned positive after dropping 5% and US crude regained over half of a 20% plunge – the euro gained 0.5% to $1.08805.
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 program it extended overnight to include municipal debt of smaller US cities.
Still, the Fed begins its two-day meeting with no control over employment or price stability, and little ability even to judge where an economy battered by the coronavirus is headed.
Analysts said it was unlikely the Fed or other central banks would make further major policy moves, given the scope and depth of recent action.
“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."