Sweden's central bank raised its policy rate by half a
percentage point to 3.50% in line with market forecasts, and
said it expected a further hike at its meeting in June or in
September, but two deputy governors voted for a smaller hike.
"This dovish dissent is a recipe for more weakness against
the euro because of the rate differential," said Kenneth Broux,
head of corporate research for FX and rates at Societe Generale.
Market expectations are for further rate hikes from the
European Central Bank. The difference between rates in one
market and another are factors in driving currency moves.
The Norwegian crown "is also getting caught in the crossfire,
and I think the scandies can weaken more and put pressure on the
central banks to jawbone their currencies (i.e. try to talk them
stronger)," said Broux.
The euro climbed 0.16% on the Norwegian crown to a fresh three year high of 11.747 .
The euro was also stronger more broadly, rising 0.57% against the dollar to $1.1038, while the pound rose 0.5% to $1.2474 , both European currencies rebounding from similar size falls the day before.
The dollar index , which measures the currency against six major rivals, was down 0.42% at 101.38 after a 0.5% increase on Tuesday, as it benefited from a short-term flight to safety.
Shares of First Republic Bank slid nearly 50% on Tuesday after it reported a more than $100 billion plunge in deposits in the quarter, battered by lost confidence in the banking sector. It faces dwindling and tough options to turn around its business with the creation of a "bad bank" or asset sales possibilities, a source familiar with the matter told Reuters.
However, "the broader spillover impact looks limited - other regional bank shares have held up better - and the market sees it as an isolated incident. That’s why we’ve seen a bit of a bounce in risk assets and the dollar giving back some of yesterday's gains," said Lee Hardman, seneior currency analyst at MUFG.
The dollar slid 0.3% against the yen to 133.27.
Investor attention will firmly be on the slate of central bank meetings in the next few weeks with the Bank of Japan, under the new Governor Kazuo Ueda, holding its policy meeting later this week.
The Australian dollar slid to a six-week low of
$0.65955 after data showed inflation eased from 33-year highs in
the first quarter, while core inflation dipped below forecasts.
ING economists said a cooler-than-estimated inflation report
should be enough to "encourage thoughts that the recent pause in
rate tightening by the Reserve Bank of Australia (RBA) may end
up being more than that, and confirm that 3.6% was the peak in
rates this cycle."
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(Additional reporting by Ankur Banerjee in Singapore; Editing
by Christina Fincher, William Maclean)
