Swedish crown eases amid recovery

On Wednesday, the Swedish crown declined following the less hawkish approach of the country’s central bank, while the euro and pound rebounded after the jitters about the US banking sector caused the safe-haven dollar to soar a day earlier. The euro increased by 1% versus the crown to 11.41. The dollar, which traded down 0.7% versus the crown before the Riksbank’s decision, increased by 0.4% at 10.34. The dollar index, which measures the currency against six major rivals, was down 0.5% at 101.42 after a 0.5% increase Tuesday, as it benefited from a short-term flight to safety.

Sweden’s central bank raised its policy rate by half a percentage point to 3.50% as expected by the market. It stated that it expected another hike at its upcoming meeting in June or September. However, two deputy governors voted for a smaller hike. Lee Hardman, senior currency analyst at MUFG, noted that the Riksbank is still cautious regarding the need for further tightening, and two deputy governors favouring a smaller hike suggested that the bank is planning to step down the pace.

The euro and pound rose 0.6% and 0.5% respectively against the dollar, rebounding from slightly larger falls a day earlier. The dollar slid 0.2% against the yen to 133.42. Investor attention will firmly be on the slate of central bank meetings in the next few weeks, with the Bank of Japan holding its policy meeting later this week.

First Republic Bank reported a more than $100 billion plunge in deposits in the quarter, which caused shares to fall by nearly 50% on Tuesday. A source familiar with the matter informed Reuters that the bank faces dwindling and tough options to turn around its business with the creation of a “bad bank” or asset sales possibilities. However, Lee Hardman pointed out that the market views the First Republic Bank as an isolated incident, and the broader spillover impact looks limited, with other regional bank shares holding up better, leading to a rebound in risk assets and the dollar giving back some of yesterday’s gains.

The decline of the Swedish crown due to the Riksbank’s less hawkish approach highlights the importance of central bank policy meetings. Meanwhile, the fall in the value of the dollar is due to the market seeing the issues facing First Republic Bank as an isolated incident. The market expects the bank to pursue asset sales and the creation of a “bad bank” to recover its business, and it has not seen a broader impact on regional bank shares.