Sweden's crown fell back from nine-month highs on Wednesday as the central bank warned it was "highly prepared" to intervene and weaken the currency to bolster very low inflation. The dollar lost ground again to the euro, adding to a weak end to the year that has seen it fall almost 5 percent in just under a month as investors took profit on its double-digit rise since January.
Analysts say those falls look chiefly the result of a thin holiday market and the greenback continued to make progress against the Chinese yuan and Asia- and oil-dependent majors like the Australian dollar and Norwegian crown. Sterling, driven to an 8-month low on Tuesday by fears over Britain's referendum on leaving the European Union, inched down 0.1 percent to $1.4799.
The Swedish crown fell around a third of a percent against both the euro and dollar after the statement by Governor Stefan Ingves mid-morning. Citi strategist Josh O'Byrne said the move should squeeze out some "short" bets against the euro. "This should reinforce a range in EURSEK for now, centered between 9.20-9.30. Shorts should lighten up, awaiting better levels," he said.
"We have been bullish on the crown, seeing growth and inflation conditions over the next 12 months as positive drivers for the currency. The theme however is one that should develop slowly." By 1238 GMT, the crown traded 0.3 percent weaker on the day at 9.1800 crowns per euro. Offshore rates for the yuan had steadied at 6.5705 yuan by lunchtime in London, having briefly breached 6.60 yuan per dollar for the first time since the second half of 2011.
That move took the Chinese currency past lows hit around a one-off devaluation in August before a sharp reverse mid-morning in London. Dealers declined to say if there had been much impact on the market from the Chinese central bank's suspension of at least three foreign banks from conducting some foreign exchange business until the end of March. Included among the suspended services are liquidation of spot positions for clients and some other activities related to cross-border, onshore and offshore businesses, three sources who had seen the suspension notices told Reuters. Against the euro, the dollar fell just under 0.2 percent to $1.0929. It was roughly steady on the day at 120.49 yen.
While the consensus among major bank analysts on the dollar is still for it to gain against peers such as the euro and yen in 2016, such forecasts are less widespread than a year ago and, with some exceptions, stop short of predicting a rise to parity with the euro. BNP Paribas strategist Michael Sneyd said the dollar's progress against other majors had lagged significantly behind moves up in US bond yields since the Federal Reserve delivered its first rise in official US interest rates on December 16. "We would put that down to most market participants being out of the market at the moment. That may change next week," he said. "Long dollars still seems to be a stand out opportunity particularly with the euro almost at $1.10 and the yen at 120 (per dollar).
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