Forex Market: USD/SEK snaps two days of losses after Sveriges Riksbank leaves borrowing costs on hold

The Swedish krona traded snapped two days of advances against the US dollar on Wednesday, after Sveriges Riksbank refrained from taking action and left the main interest rate unchanged at a record-low 0.75%, where it has been since December last year.

USD/SEK hit a session high at 6.5144 at 08:05 GMT, after which consolidation followed at 6.5115, adding 0.24% for the day. Support was likely to be received at April 2nd low, 6.4416, while resistance was to be met at April 8th high, 6.5325.

The Sveriges Riksbank left its repo rate unchanged at 0.75% at its policy meeting today, saying that deflation risks started to fade. The benchmark rate has been at this level since the bank meeting on December 18th 2013. The repo rate represents the rate at which banks can borrow or deposit funds at the Riksbank for a period of seven days. Short-term interest rates are of utmost importance for the valuation of national currencies.

Following the decision, the Swedish krona advanced to the strongest level in a week against the US dollar, after which it erased earlier gains.

The Swedish government raised its GDP growth forecast for this year, as the growth in the biggest Scandinavian economy is lifted by a global recovery.

The Swedish Ministry of Finance published today its forecasts, saying the nations economy will expand 2.7% this year and 3.3% next year, up from 2.5% and 3.5% estimated in February. Swedens economy expanded 1.5% in 2013.

“There will be limited scope for fiscal policy reforms in the years ahead,” the ministry said in a statement, cited by Bloomberg.. “Public finances need to be restored to balance and surplus after many years of crisis that have called for strong stimulus measures.”

The Swedish economy relies mostly on exports, which account for almost 50% of its $560 billion output, and the country outperformed most of the European countries by reducing taxes to spur demand amid a slump in exports.

However, Prime Minister Fredrik Reinfeldt said that the government will put plans for more tax reductions on hold as he sees no more room for cuts over the next four years, after cutting income taxes five times since 2006.

Meanwhile, at 18:00 GMT the Federal Open Market Committee (FOMC) will release the minutes from its meeting on policy held on March 18th-19th. The minutes offer detailed insights on FOMC’s monetary policy stance. This release is closely examined by traders, as it may provide clues over interest rate decisions in the future. High volatility is usually present after the publication.

At 19:30 GMT Fed President for Chicago Charles Evans is expected to take a statement. He was a FOMC voting member in September – December 2007, 2009 and 2011. Statements by FOMC members attract investors’ attention, as they may offer clues over the possible direction of monetary policy in the future. Evans’s remarks may indicate a positive or negative trend in a short term.