Data released this morning show Swedish CPIF inflation declined to 1.2% versus a consensus of 1.4% in August, and core CPIF (excluding energy) was on consensus at 2.2%. Like the Fed, the Riksbank is no longer looking too closely at small deviations in the inflation figures, and bumps in some generally volatile series will probably be overlooked in the path to lower rates, ING’s FX strategist Francesco Pesole notes.
“Markets are currently pricing in 85bp of easing by year-end, which translates into one 25bp cut at each meeting (September, November, December) plus some speculation that one of those will be a 50bp move.”
“Recently, Riksbank Governor Eric Thedeen explicitly said three cuts look more likely than two by year-end, but there hasn’t been much discussion about half-point moves. Given the Riksbank started cutting rates in May and the central bank wants to avoid adding pressure to SEK, we think policymakers will keep moving in 25bp steps.”
“EUR/SEK has been supported in September, as the krona depreciated in line with other pro-cyclical currencies. Despite the Riksbank dovish cuts, SEK is showing much more resilience than its closest peer NOK, which remains vulnerable to speculative selling due to thinner liquidity conditions. In the near term, EUR/SEK could move back above 11.50, but should struggle to rally much further unless the Fed surprises on the hawkish side or, later, Trump wins the US elections.”
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