Despite the release of a number of softer than forecast economic data reports the Euro was able to surge to a three-and-a-half year high against the Swedish Krona as the Nordic nation’s Central Bank slashed interest rates more than expected.
In a bid to tackle low inflation in the country the Riksbank slashed interest rates from 0.75% to 0.25%.
Economists had been expecting a rate cut to 0.5%. Adding to the pressure upon the Krona the bank also cut its economic growth forecasts for the Swedish economy and said that it does not expect rates to rise until the end of next year.
Previously the bank had signaled a rate rise by next spring.
Last month’s rate cut by the European Central Bank has been seen as exacerbating the low inflation rate in the Eurozone’s neighbours, especially Norway, Sweden and Switzerland.
“They all fear that deflation will be aggressively exported to their countries and there is now a race to the bottom to ensure that such price expectations do not become entrenched,” said a currency strategist at UBS. He added that if the low inflation issue persists then Norway and Sweden may have to adopt a similar pegging system to that used by the Swiss.
With the recent run of Eurozone PMI reports all disappointing and today’s Eurozone retail sales coming in below market expectations attention will now be focused on today’s ECB policy meeting for signs that policy makers could be considering further measures to assist the economy.
“Unless ECB President Mario Draghi attempts to talk down the Euro, or signals that the ECB has made further progress on its asset purchase plan, then it is unlikely that today’s policy meeting will have much impact on Euro direction in the near term,” said a currency analyst.
Against the Pound the Euro regained some ground after the latest UK Services PMI data came in below forecasts.
The Markit compiled services PMI dropped to 57.7 in June from the previous months figure 58.6 and was below forecasts for a figure of 58.3.
The Swedish Krona could make further declines against the Euro on Friday of the latest New Orders and Industrial Production data disappoints.
Euro Exchange Rate News:
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