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Sharper Decline in Q4 Swedish Growth Spurs Pound Swedish Krona Exchange Rate Rally

February 1, 2021 - Written by Frank Davies

Pound Swedish Krona Exchange Rate Trends Higher on Disappointing Swedish Growth

The Pound to Swedish Krona (GBP/SEK) exchange rate rallied sharply as the fourth quarter Swedish gross domestic product proved weaker than forecast.

While forecasts had pointed towards the growth rate slowing sharply on both the year and the quarter investors were still discouraged by the negative nature of the data.

Growth plunged -2.6% on the year in the fourth quarter, highlighting the extent of the Covid-19 pandemic’s impact on the Swedish economy.

Coupled with a general sense of market risk aversion this left investors with little reason to favour the Swedish Krona at the start of the week.

Even though January’s Swedish manufacturing PMI demonstrated another solid month of expansion this was not enough to keep SEK exchange rates from weakening.

Swedish Krona Looks for Support on Positive Services PMI

Support for the Swedish Krona may pick up later in the week, though, if the corresponding services PMI can also demonstrate a positive result.

Although the service sector is not thought to have performed as strongly as manufacturing last month, in large part due to Covid-19 disruption, a monthly expansion could still shore up SEK exchange rates.

Evidence of greater resilience within the Swedish economy, in spite of the fourth quarter’s slowdown, could see the Krona recover some of its lost ground on Wednesday.

However, if the services PMI fails to show an improvement on the month this could leave SEK exchange rates exposed to fresh selling pressure.

Increasing global tensions over Covid-19 and the distribution of vaccines may also serve to keep a dampener on the Swedish Krona in the days ahead.

Pound Exchange Rates Vulnerable Ahead of BoE Policy Announcement

The GBP/SEK exchange rate may struggle to hold onto its gains, meanwhile, as markets brace for the Bank of England’s (BoE) February policy decision.

Even though no change in monetary policy looks likely at this stage the Pound still looks vulnerable to the latest commentary from policymakers.

If the central bank expresses greater anxiety over the health of the economic outlook this could see the Pound trending sharply lower across the board on Thursday.

On the other hand, evidence that policymakers are less willing to consider any imminent loosening of monetary policy may help to shore up GBP exchange rates in the short term.

Confirmation that the UK service sector experienced an even deeper decline in January could also see the GBP/SEK exchange rate shedding ground this week.
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