Swedish crown soars, dollar climbs in Europe

Sweden's crown jumped to 8-month highs on Wednesday after strong inflation made it highly likely the country would end negative interest rates, while broader FX markets were quiet before central bank meetings and a US-China trade deadline.

The crown was the standout performer, hitting its strongest since April against the euro and since July versus the dollar after the pace of inflation in November picked up by more than expected.

"This obviously supports the Riksbank case of the well anticipated rate hike despite virtually all other data working against the Riksbank's own economic outlook," said Olle Holmgren, an economist at SEB.

The euro was last down 0.8% against the crown at 10.454, leaving the Swedish currency at its strongest since late April.

The dollar dropped 0.6% to 9.432 crowns per euro, its weakest since July.

In another notable move, the Hong Kong dollar rallied to its strongest level since July 24, which analysts attributed to the unwinding of bets previously profiting from "carry trades" - borrowing with low interest rates in Hong Kong to purchase US dollar assets.

The Hong Kong dollar was 0.2% higher at 7.8105.

The US dollar clawed higher as investors awaited the outcome of the Federal Reserve meeting and drew some support from hopes that US President Donald Trump will delay the imposition of more tariffs on Chinese goods.

The British pound recovered most of its losses touched off by a poll showing the ruling Conservative Party's lead narrowing in Thursday's general election.

FX markets more broadly struggled for direction with investors awaiting the Fed, UK election, a European Central Bank meeting on Thursday and the Dec. 15 trade deadline.

The dollar rose 0.1% against a basket of currencies and 0.1% versus the euro to $1.1081, helped by a Wall Street Journal report of officials from both the United States and China saying the groundwork was being laid to push back the tariff deadline.

"The trade negotiations will be key. You could argue there is a degree of complacency here," said Neil Mellor, an FX analyst at BNY Mellon.

Mellor said he thought the Federal Reserve meeting would be a "damp squib", while Christine Lagarde's first policy meeting at ECB chief was unlikely to produce any fireworks. Economic uncertainty stemming from the US-China trade war has prompted the US Federal Reserve to cut interest rates three times this year. It is almost unanimously expected to leave interest rates unchanged on Wednesday.

Sterling's recent rally came to a halt after the latest polling data. The pound fell to as low as $1.3107 but was last at $1.3154, flat on the day.

The dollar was down marginally against the Japanese yen at 108.67.