Mats Hydén, Research Analyst at Nordea Markets, suggests that there is a lower probability for Q4 hike by Riksbank in rate path priced by the market as SEK is showing signs of weakness going into election and this may make Riksbank hesitate.
Key Quotes
“In Riksbank’s new rate path (published 6 September) we expect the probability of a Q4 rate hike to be lower. The old path signaled around 8-9 bps rate hike in October and roughly 10 bps hike in December. Our main scenario is that those probabilities will be halved.”
“We consider our main scenario to be the market’s consensus, and is also close to what the market is pricing.”
“We see a higher probability for a hawkish outcome from the September meeting than for a dovish outcome, when comparing to the consensus expectation.”
“The recent weakness in the SEK, especially visible in EURSEK, cannot easily be explained by macro, market or policy related information.”
“The proximity of the election, the widespread view that post-election environment may be poisonous for the SEK and the current weak trading should worry the Riksbank. An overly soft policy message may send the EURSEK spiraling upwards without much to stop it.”
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