A not so pleasant ride

The Swedish krona continues its roller coaster ride against the US dollar. The price of $1 can almost go up or down by ¢2 in just a couple of hours. The Swedish Central Bank AKA Riksbanken will very likely carry out the year's second reduction of the policy rate by 25 points on August 19, which in turn will lead to further pressure on the Swedish krona.

The reason for this is that the lower interest rate reduces the return on interest-bearing securities, which creates an outflow of capital to other countries where the return is higher. This reduces the demand for Swedish krona and the currency weakens.

Since FedEx has signaled that it only intends to cut the policy rate once in 2024, the Swedish krona will continue its roller coaster ride for the rest of the year as Riksbanken will most likely make two more cuts in 2024.