Sweden's Riksbank wagers poker game with SEK bears

Sweden’s central bank, Riksbank, is entering a risky poker game against bearish forces targeting the Swedish Krona (SEK). Riksbank, believing the crown to be undervalued, has intensified its weekly “bets” of major interest. The outcome of this strategic play is poised to influence the crown’s value significantly, raising questions about the bank’s conservative or aggressive approach.

If Riksbank opts for an aggressive stance, any short-term positivity for the SEK could vanish rapidly, triggering concerns that the central bank might deplete its metaphorical foreign exchange chips.

Riksbank’s second weekly report on its hedging program unveiled a substantial increase in its dollar-to-crown transactions. In the first week of October alone, Riksbank sold a staggering $1.34 billion, compared to $390 million in the last week of September. This surge amounts to approximately 17% of the total $8 billion Riksbank planned to sell by the end of January/March, including two billion euros.

The impact of Riksbank’s actions rippled across the foreign exchange market, causing the Euro to Swedish Krona (EUR/SEK) pair to rise to 11.74 on Tuesday, marking its highest level since September 26. This surge in EUR/SEK followed closely after the initiation of Riksbank’s hedge program, intensifying speculations about the crown’s stability.