Jane Foley, senior FX strategist at Rabobank, notes that the SEK has recovered a little ground vs. the EUR in recent sessions, but EUR/SEK is still over 2% stronger compared with the levels traded at the end of last month.
Key Quotes
“The release of the far weaker than expected Swedish Q2 GDP report at -0.1% q/q in late July potentially sounded the death knell over remaining hopes for policy tightening by the Riksbank this year particularly given the backdrop of slowing growth in Germany and the Eurozone. On the back of this we have adjusted our forecasts for EUR/SEK higher and forecast to EUR/SEK 10.70 on a 3 month view.”
“The release of the Q2 GDP report was not the first sign of a stalling Swedish economy. Prior to its release, the National Institute of Economic Research had published a weaker than expected economic tendency indicator for July at 96.8 down from June’s reading of 98.1. Additionally, Sweden’s seasonally adjusted unemployment rate unexpectedly jumped in June to 6.6% from 6.4% in May. The market consensus had pointed to a rate of just 6.3%. These data undermine the confidence that was expressed by the Riksbank at the July 2 policy meeting.”
“Given that the ECB is expected to announce some monetary easing as soon as next month, it seems very unlikely that the Riksbank will be hiking rates in the foreseeable future.”
“Currently it is assumed that policymaker will avoid rate cuts that would force the banks to pass on costs to retail customers. Clearly this limits the transmission mechanism of interest rate policy. It also implies that the Riksbank may favour a return to QE in the future if necessary.”
“Later on this week, Swedish July CPI data are due for release, followed by an inflation expectations survey and house price data. The next round of labour, retail sales and consumer confidence data are due before the end of the month. The Riksbank could be in a very uncomfortable position if the economic outlook worsens and the SEK could find itself particularly sensitive to bad news.”
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