USD/SEK analysis as Sweden’s economic crisis escalates

The Swedish krona has done well in the past few weeks even as the country’s economic crisis continued. The USD/SEK exchange rate dropped to a low of 10.2 this month, significantly lower than the year-to-date high of 10.77. Similarly, the EUR/SEK pair dropped from 11.47 to a low of 11.09.

Swedish economic crisis

Sweden is going through one of its worst economic crisis as inflation remains at an elevated level and as the housing market cracks. 

Data published this month showed that the country’s consumer inflation rose to 12%, the highest level since 1991. It has risen from the pandemic low of -0.1% while the unemployment rate has risen from 6.4% in December to 8.6% in March.

Sweden has also seen its home prices plunge to the lowest level in years while consumer spending has plummeted because of the cost of living crisis. Corporate bankruptcies jumped to a decade high in January.  As a result, analysts believe that Sweden will be the only country in its region to contract this year.

As a result, Riksbank, the world’s oldest central bank, has embarked on a tightening phase. In February, the bank decided to increase interest rates in to 3%, the highest level since the Global Financial Crisis (GFC). 

The central bank, therefore, is trying to balance the need to battle inflation without causing more pain. This explains why its interest rates are significantly lower than that of the European Union. Higher rates make it more expensive for people to buy and developers to build.

The next key catalyst for the USD/SEK pair will be the latest US consumer confidence data scheduled for Tuesday. This is an important figure considering that consumer spending is the biggest part of the American economy. 

In Sweden, the next key forex news to watch will be the latest retail sales and consumer confidence data scheduled for Wednesday this week. Analysts expect the data to show that sales continued falling in February. Swedish retail sales have fallen in the past nine straight months.

USD/SEK technical analysis

USD/SEK chart by TradingView

The weekly chart shows that the USD to SEK pair has pulled back in the past few days. It has dropped from a high of 10.70 to the current 10.35. In the long term, however, the Swedish krona has crashed by more than 27% from the lowest level in 2021. It has dropped by over 74% from its 2011 lows. 

The Swedish krona has formed a cup and handle pattern. Therefore, there is a likelihood that the pair will have a bullish breakout in April as buyers target the year-to-date high of 11.50.