The USD/SEK exchange rate held steady near its highest level in over a year after the Federal Reserve decision. It was trading at 11.10 as traders wait for the last interest rate decision by Riksbank, the world’s oldest central bank. It has risen by 12.5% from its lowest level this year.
Riksbank interest rate decision
The USD/SEK pair has risen sharply in the past few weeks as the Riksbank has accelerated its interest rate cuts in a bid to salvage the ailing economy.
The central bank has slashed rates from 4% in March to the current 2.75%. Economists expect the bank to slash rates again on Thursday, bringing the benchmark rate to 2.50%. It will also point to more cuts in 2025.
The Riksbank has slashed rates because the country’s consumer inflation continued falling and it remains below the 2% target. Recent data showed that the headline Swedish Consumer Price Index (CPI) remained at 1.6% in the last five consecutive months. It has dropped sharply from last year’s high of 12%, a big victory for the central bank.
The Riksbank is aiming to stimulate the economy by slashing interest rates, a move that it aims will lead to more borrowing. Recent data showed that the economy has remained stagnant, and analysts expect the growth to be subdued in the next meeting.
A recent Bloomberg poll found that the economy will increase by 1.8% in 2026, down from 1.8% in a recent survey. The survey also estimated that Riksbank will cut rates two times in the first quarter of the year.
Cutting interest rates helps to stimulate the economy by ensuring that consumers and companies have affordable access to capital. Borrowing improves the economy by promoting their spending.
Federal Reserve decision
The USD/SEK exchange rate has also reacted to the recent actions of the Fed. In a statement on Wednesday, the bank decided to slash interest rates by 0.25%, bringing the year-to-date cuts to about 1%.
However, this cut was widely seen as being hawkish since officials hinted that it would deliver just two cuts in 2025. Before that, the dot plot pointed to four more interest rate cuts in 2025.
The Fed is more concerned about the upcoming administration that has maintained some highly inflationary policies. For example, Trump wants to cut taxes to spur economic growth, a move that will lead to more inflation.
He also wants to deport millions of illegal immigrants and to impose large tariffs in the United States. Therefore, the Fed believes that more cuts will lead to higher inflation figures. In a note, analysts at ING said:
“We got another 25bp policy rate cut from the Fed, but updated projections and Chair Powell’s press conference confirms that the Fed is going to be much more cautious next year with sticky inflation and President Trump’s policy mix meaning a higher hurdle is required to justify rate cuts in 2025.”
USD/SEK technical analysis
The weekly chart shows that the USD to SEK exchange rate has drifted upwards in the past few weeks. It has now crossed the descending trendline that connects the highest swings since September 2022.
The pair has also moved above the key resistance level at 11.04, its highest level in April 2024. Also, it rose above the 50-weekly moving average, while the MACD and the Relative Strength Index (RSI) have pointed upwards.
Therefore, the USD/SEK pair will likely continue rising as the US dollar index surges. If this happens, the next point to watch will be at 11.50.
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