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Pound Swedish Krona (GBP/SEK) Exchange Rate Heads Back Towards Lows as UK Economic Growth Slows

December 10, 2020 - Written by Frank Davies

Slowing UK Gross Domestic Product Fuels Pound Swedish Krona (GBP/SEK) Exchange Rate Losses

The Pound to Swedish Krona (GBP/SEK) exchange rate took a fresh leg lower as October’s monthly UK gross domestic product showed a sharp slowdown.

Growth eased from 1.1% to 0.4% on the month at the start of the fourth quarter, pointing towards a sustained loss of momentum for the UK economy.

With the economy looking increasingly at risk of experiencing a double-dip recession before the end of the year support for the Pound naturally diminished.

This added to market disappointment in the wake of Wednesday’s much-anticipated Brussels dinner between Boris Johnson and Ursula von der Leyen.

As the two failed to make any breakthrough on Brexit, in spite of agreeing to extend discussions until Sunday, this put the GBP/SEK exchange rate under pressure.

With a no-deal Brexit scenario looking increasingly likely once again investors saw little reason to favour the Pound over its rivals.

Improvement in Swedish Inflation Rate Benefits Swedish Krona

On the other hand, the Swedish Krona found support on the back of November’s set of inflation data.

While forecasts had pointed towards the monthly inflation rate holding steady at -0.1% it instead picked up to 0%.

Even though this signals a stagnation in inflationary pressure the uptick was still enough of an improvement to improve the strength of SEK exchange rates at this stage.

Although inflation still looks set to trail significantly below the Riksbank’s target level for some time yet to come this modest improvement supported the Swedish Krona against its rival.

A disappointing month of household consumption for October failed to dampen the appeal of the Krona, meanwhile.

Focus on Brexit Talks Set to Weigh on GBP/SEK Exchange Rate

Any GBP/SEK exchange rate rally appears unlikely in the days ahead as market focus remains on the Brexit trade talks.

As long as investors see reason to fear that a no-deal outcome could come to pass the Pound may struggle to return to a positive footing.

However, if the two sides can bridge the remaining issues that stand between them and reach a deal at the weekend this could give the GBP/SEK exchange rate a strong boost.

A resolution to the Brexit issue would bode well for the outlook of the UK economy, limiting the risk of further damage to come in 2021 and bolstering the appeal of the Pound.
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