The Swedish krona dropped against the U.S. dollar in the European session on Thursday, as Sweden's central bank left its key interest rate unchanged but indicated that the policy rate could be lowered sooner than indicated, if inflation continues to fall.

The Riksbank decided to leave the repo rate unchanged at 4 percent, as expected.

"The Executive Board assesses that there is less risk of inflation becoming entrenched at levels that are too high. Following a longer period during which inflation was much higher than expected, inflation has recently fallen in line with the Riksbank's forecasts," the bank said in a statement.

"The policy rate can therefore probably be cut sooner than was indicated in the November forecast," it added.

The Swedish krona touched 10.48 against the greenback, its lowest level since January 29. On the downside, 11.00 is possibly seen as its next support level.

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