Sweden sets off a very busy week in terms of central bank activity.
Following quadruple witching day on Friday, we ought to expect a rather volatile week of trading ahead of the quarter’s close.
This is especially true for the non-central currencies, which might come under extra strain.
Here’s what some of the central banks are up to.
Sweden to Stay the Course
The COVID outbreak has merely exaggerated a problem Sweden’s Riksbank was already dealing with unsuccessfully.
Like most currencies outside of, but intimately tied to, the euro, inflation has been chronically below target, with no expectation of it coming back into line.
Comparatively, the krona remains “too strong” for the likes of policy-makers. However, despite prolonged negative interest rates, that hasn’t changed.
Today, the Swedish government announces a special budget to deal with the effects of COVID.
The extra spending might finally raise some expectations for increased inflation. But Sweden has managed to avoid the economic impact of the pandemic better than its neighbors. Therefore, we can expect demand for the currency to remain healthy.
The Market Reaction
Expectations are for the Riksbank to leave policy exactly as it is.
They already have QE programmed to the middle of next year, and they’ve outlined specific bond-buying targets for the rest of the year.
The only thing that they may change is that they might revise upward their economic outlook. This is because Sweden has, so far, registered a faster rebound than expected.
However, that’s already priced into the market, so we shouldn’t see much reaction in the exchange rate.
Norges to Focus on Outlook
Norway’s central bank is in a similar position as Sweden’s. But it’s got a slightly worse economic situation following the crash in oil prices.
So far, their recovery has been in line with expectations, but the currency has gained more than expected. Despite that, inflation has been trending higher as well, putting the Norges in a bit of an awkward position.
Expectations are for the Norges to keep their policy the same. But because of the inflation situation, there has been some speculation that they might signal an earlier increase in rates.
Their latest statement said they don’t see a rate hike until the end of 2022. And that might strengthen the krone a bit.
SNB to Increase Intervention?
The COVID situation has turned a chronic headache for the SNB into a full-blown migraine.
The loss of risk appetite has massively increased demand for the Franc, which was already a problem.
Even the lowest interest rate in the world and negative interest on bank balances hasn’t discouraged people from investing in the gold-backed currency.
Expectations are also for the SNB to keep rates the same.
Where there could be a change is if there is any commentary on the franc strength. As the world economy appears to be returning to a rebound, risk appetite might finally be taking a turn for the better.
The SNB might finally be getting some relief, and that could, ironically, support the franc as interventions are expected to be less.Test your strategy on how the CHF will fare with Orbex - Open Your Account Now.