The Swedish krona rushed higher on Friday after the country’s national debt office said it was betting on a rally, potentially causing headaches for the central bank.
In a statement, the debt office said it “will take a position for a stronger krona against the euro, aiming to reduce the cost of central government debt”. It intends to build up a position of up to SKr7bn ($800m), it said.
The accumulation is modest by recent standards; the debt management office bought SKr50bn in the financial crisis in 2009.
Nonetheless, the euro sank by 0.6 per cent on the day to SKr10.20. More broadly, the move represents a marked contrast with the central bank, which has tirelessly sought to douse down the krona, despite upbeat economic growth, in an effort to push inflation up to its target.
Earlier this month, the krona hit a crisis-era low with the euro trading at SKr10.69 after the central bank yet again pushed back its likely timing for a rise in interest rates. The benchmark rate stands half a percentage point below zero.
Carl Hammer, a currencies analyst at SEB in Stockholm, tweeted that the move by the debt office was “a very good sign for krona bulls . . . Historically this has been a strong signal for the euro to continue lower [against the krona].” (See his chart below.)
Overall this is not a big amount flow-wise and will do little to alter the outlook for the krona from a flow perspective. But it is a signalling effect clearly as the debt office has been spot on before when taking larger currency bets.
[It will be] interesting to see now the response from the Riksbank.
Mr Hammer noted that the Riksbank effectively blocked a similar measure from the debt office in 2016 on the grounds that it would conflict with monetary policy.
“The Riksbank has worked for years to turn the krona into confetti, and here comes [the debt office] and does the opposite!” tweeted analyst Martin Enlund at Nordea.
“It is important that the krona exchange rate develops in a way compatible with inflation stabilising close to the target,” the central bank, which on Friday is celebrating its 350th anniversary, said last month.