The Swedish Krona weakened against the U.S. dollar in the early European session on Wednesday, as the Riksbank raised its benchmark rate by half-percentage point and signalled the possibility of a smaller rate hike going forward.

Sweden's central bank lifted the policy rate by 50 basis points to 3.5 percent, in line with expectations.

The bank noted that inflation would fall back this year and stabilize close to 2 percent during 2024.

"Following the rapid policy rate hikes over the past year, monetary policy has a tightening effect on the economy and the Executive Board assesses that after the April meeting there will be scope to adjust the policy rate in smaller steps," the bank said in a statement.

Markets trimmed expectations of peak in the policy rate to around 3.75 percent following the decision.

The central bank added that new economic data and how it is assessed to affect the economic outlook and inflation prospects will be decisive in determining the monetary policy in the future.

The Swedish Krona fell to 10.35 against the greenback, setting a 5-day low. The currency may challenge support around the 11.00 level.

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