LDN - Business

Crown stands out in quiet market after Sweden calls end to QE

[December 20, 2017] By Tommy Wilkes

LONDON (Reuters) - Sweden's crown rose half a percent on Wednesday after the country's central bank called an end to its quantitative easing scheme, as higher-profile currencies saw little activity in generally thin pre-holiday trade.

The crown initially jumped almost one percent against the euro before giving up some of those gains.

Holding interest rates unchanged, the Riksbank said it would end new net bond purchases though coupons and maturing bonds would be reinvested, signalling a temporary expansion of its balance sheet.

"Most of the gains were retraced because the Riksbank gave quite a dovish tone," said Thu Lan Nguyen, an FX strategist at Commerzbank.

But she and other analysts said that, after disappointing previous predictions that it would end quantitative easing, the central bank's announcement was a boost for the crown overall.

"It made the first step towards exiting its monetary expansionary policy. It also said it expects the crown to appreciate against the euro which is positive for the currency," Nguyen said.

The central bank in neighbouring Norway last week surprised markets by signalling interest rate rises sooner than expected.

The crown was up 0.59 percent at 9.8945 per euro, having earlier risen to 9.8595, its strongest since Dec. 12. <EURSEK=D3>

The Riksbank has been reluctant to tighten policy despite inflation being above or close to its 2 percent target for most of the year and a strongly-performing economy, putting it out of step with other central banks, many of which have turned more hawkish.

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A U.S. Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration/File Photo

The crown has lost nearly 7 percent of its value against the euro over the last three months

BOJ TAPER NEXT?

The euro held on to small gains with analysts saying that expectations of the Trump administration's landmark U.S. tax overhaul were largely priced in to the dollar.

Year-end portfolio moves and a rise in German bond yields also helped keep the euro broadly unchanged at 1.184 against the greenback <EUR=>. The euro was up 0.3 percent against the Japanese yen at 133.99.

The dollar stood at 113.18 yen <JPY=>, up 0.8 percent on the day, having pulled away from Friday's low of 112.035, with last week's high of 113.75 seen as its next target.

Gains in the dollar were limited as many market players looked to Thursday's outcome of the Bank of Japan's two-day policy meeting for clues to whether it will join the U.S. Federal Reserve and European central banks in winding back stimulus.

A speech by BOJ Governor Haruhiko Kuroda in November sparked speculation of a stimulus taper when he mentioned the concept of a 'reversal rate' - a level at which low interest rates start to have more harmful side-effects than benefits.

(Reporting by Tommy Wilkes; Additional reporting by Hideyuki Sano in TOKYO and Masayuki Kitano in SINGAPORE; editing by John Stonestreet)

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