The Swedish crown fell on Friday but was still on track for its biggest weekly gain against the dollar and the euro in 14 years as bets that the Federal Reserve was nearly done raising rates supported riskier assets and offset stronger than hoped Sweden inflation.
The crown fell 0.6% to 10.2430 on the day but was still set for its biggest weekly gain since March 2009, up 5.2% this week, after touching on Thursday its highest level against the greenback since May 10.
Against the euro, it was last down 0.5% on the day at 11.5120, but still on track for its biggest weekly gain since July 2009, up 3.1%, after touching a two-month high of 10.3690 on Thursday.
Easing U.S. inflation and increased bets the Federal Reserve's rate hikes cycle is nearing an end have been a boon to battered riskier currencies such as the Swedish crown, which declined sharply against the euro and the dollar earlier this year.
"The late-June hawkish pivot helped halt the SEK slump, but it’s really been all up to the external environment to drive the huge rally of the past few days," said Francesco Pesole, FX strategist at ING.
"The (crown) recovery is offering some breathing room for the Riksbank, but evidence of sticky inflation, paired with those of rebounding long-term inflation expectations, all suggest a hike at the September meeting is quite likely," he added.
Sweden's central bank raised its policy rate by a quarter percentage point in June to 3.75% and forecast at least one more rate hike this year as it saw the risk of inflation getting stuck above the 2% target growing.
Data on Friday showing Sweden inflation was decelerating at a slower pace than expected sent the crown lower.
Consumer prices in Sweden, measured with a fixed interest rate, rose 0.9% in June from the previous month and were up 6.4% from the same month last year. A Reuters poll had predicted a inflation at 6.1%.
"The extent of SEK underperformance will ease if global risk assets rise sharply and inflation pressures abate more quickly than expected," Stephen Gallo, Global FX Strategist at BMO Capital Markets.
The Sweden crown saw a 4% decline against the dollar in the second quarter, and a 4.5% drop against the euro.
In another downside risk for the crown, shares of $13 billion
Swedish property group SBB
sank around 10% on Friday as the company ruled out state support as it sought to repair its battered finances, marred by a heavy loss and dwindling liquidity. (Reporting by Joice Alves; Editing by Amanda Cooper and Louise Heavens)