The dollar took a breather on Wednesday after reaching a 14-year high the previous day, while the Swedish crown chalked up its biggest rise in six months after the Riksbank voted to ease policy further only by the narrowest of margins.
Sweden’s central bank kept interest rates on hold at -0.50 percent and extended its bond-buying program after a split board forced Governor Stefan Ingves to use his casting vote for the first time since 2008.
The crown rose to its highest in more than two months against the euro.
The dollar drifted lower, meanwhile, giving back some of the ground gained since the Nov. 8 U.S. presidential election. The greenback has chalked up all its 4.5 percent gains for the year since the election, as traders have bet that Donald Trump’s administration will go on a growth-boosting tax cut and fiscal spending spree.
With no major economic data or policymaker speeches scheduled and the Christmas holiday approaching, the euro dragged itself from Tuesday’s 14-year low back above $1.04.
The biggest mover was the Swedish crown. With central bank stimulus, housing debt and private sector borrowing all looking stretched, according to many economists, foreign exchange traders bet on this being the beginning of the end of QE.
“This one is probably the last QE extension, in our view,” said Daniele Antonucci, economist at Morgan Stanley. “Stimulus, monetary and fiscal, is unlikely to be extended much further.”
At 1115 GMT the euro was down 0.7 percent against the crown, below 9.64 crowns EURSEK= for the first time since October 11 and marking its biggest one-day fall since June 20.
The euro was up 0.2 percent on the day against the dollar, however, at $1.0405 EUR=, rebounding from as low as $1.0352 on Tuesday, a level last seen in January 2003.
Traders are casting a wary eye on Italy’s troubled bank Monte dei Paschi di Siena (BMPS.MI), which needs to raise 5 billion euros by the end of the year to avoid being wound up by the European Central Bank.
And dollar bulls say the greenback could resume its climb later in the day if the Dow Jones Industrials Average hits the psychological 20,000 level .DJI.
“The euro is in a fight between short-covering pressure and political angst. Economics doesn’t come into it at all. If Dow 20,000 is just a number but a magnet all the same, euro parity with the dollar will be every bit as magnetic,” said Kit Juckes at Societe Generale.
“We’ll get there and get over-excited before too long.”
The dollar was down 0.3 percent against the Japanese yen at 117.50 yen JPY=, down more than one yen from its 10 1/2-month high of 118.66 touched on Dec 15.
The dollar’s trade-weighted index against a basket of six major currencies .DXY, =USD fell 0.2 percent to 103.11. On Tuesday it hit a 14-year high of 103.65.
U.S. Treasury yields slipped on Wednesday. The 10-year yield was down a basis point on the day at 2.55 percent US10YT=RR, and almost 10 basis points off last week’s two-year peak.