Markets quickly shook of the initial disappointment after Fed chairman Bernanke’s statement before Congress yesterday. EUR/USD took a significant drop from 1.2280 to 1.2189 as Bernanke in contrast with markets speculation did not deliver any hint that another round of QE is imminent. Today, Bernanke speaks again when he gives his semi-annual report to the US House. However, based on Bernanke’s statement yesterday before the US Congress, it is very unlikely that his speech today will reveal anything new and we could see EUR/USD testing yesterday’s low at 1.2189 again today.
EUR/GBP took an initial spike up after today’s release of minutes from the Bank of England meeting 5 July which showed that the BoE may examine possible rate cut after assessing new measures. However, EUR/GBP has all ready returned back below 0.7850 as demand for safe haven still dominates the FX market.
Looking at the development in the FX market over the past week, both Swedish Krona and British Pounds have appreciated against EUR and USD while e.g. the Norwegian Krona has depreciated against most of the major currencies. This could indicate that investors increasingly prefers GBP and SEK as safe haven currencies as investors probably see the biggest potential of further monetary policy responses in Sweden and UK. Hence, we could see EUR/GBP and EUR/SEK trending lower in the near term.
Moreover, the immediate stronger demand for SEK has caused NOK/SEK to decreased to levels below 1.1370 and setting a new twelve-moths record low. The money market is currently pricing in more than 50bp rate cuts in Sweden before year-end which in our view is quite aggressive and in that context we recommend to consider buying NOK/SEK at this stage.