The risk of higher U.S. interest rates contrasts with Sweden’s steps to help boost inflation and currency-debasing policies around the world as officials grapple with anemic global growth. The ECB introduced a package of measures to ward off the threat of deflation in the euro area last month and the Norwegian krone had its biggest drop in almost a year on June 19 after its central bank said it may have to cut interest rates.
Sweden’s central bank lowered its benchmark rate by 0.5 percentage point to 0.25 percent today, after analysts had forecast a 0.25 percentage-point reduction. It also predicted no increases in borrowing costs until the end of next year.
“If you deviate a lot from global monetary policy and try to run your own independent monetary policy, you run the risk of a stronger currency,” said Carl Hammer, chief foreign-exchange strategist at SEB AB in Stockholm. The Riksbank wants “to engineer a weaker currency,” he said. “This was massively more dovish than what most people in the market expected.”
The krona slid 1.6 percent to 9.3081 per euro, its biggest decline since November 2013. Sweden’s currency touched 9.3887, the weakest level in almost three years. The krona dropped 2 percent to 6.8389 per dollar.
The Aussie fell 1.1 percent to 93.38 U.S. cents, the biggest drop this year. It’s falling after a rally took it to 95.05 on July 1, the strongest level since Nov. 7.
Investors are under estimating the probability of a “significant fall” in the Australian dollar at some point, RBA Governor Glenn Stevens said. “Most measurements would say it is overvalued, and not just by a few cents,” he said in the text of a speech delivered in Hobart today. Policy makers on July 1 held the interest rate unchanged at a record-low 2.5 percent where it’s been since August.
The ECB kept the main refinancing rate at 0.15 percent today after a cut last month, as predicted by all 54 analysts in a Bloomberg survey.
The central bank is trying to stop inflation falling too low in an economy still struggling to recover from a debt crisis that threatened to blow apart the currency bloc.
Foreign-exchange volatility subsided, with JPMorgan Chase & Co.’s gauge tracking Group of Seven nations dropping to 5.21 percent today, the lowest on record on a closing-market basis.