ING analysts point out that the next Riksbank meeting will take place on 3 July at 9:30am CET and is likely to be fairly relaxed about ECB easing prospects.
Key Quotes
“The krona has weakened further since the start of the year, and with EUR/SEK above 10.50, policymakers appear to be taking a more relaxed stance when it comes to potential currency strength.”
“Recent inflation reports have also factored in some krona appreciation over coming years, on the belief that the currency is undervalued.”
“All of this suggests that the Riksbank will opt against ‘meeting fire with fire’ if faced with some currency strength on the back of a more dovish ECB. In fact, our FX team think the krona is actually more likely to depreciate further against the euro, as increasing concerns surrounding global growth outweigh the impact of ECB easing (which is largely priced).”
That’s not to say the impact of ECB/Fed dovishness won’t have any effect. The fact that market expectations for the Fed and ECB have slipped should translate into a lower Riksbank interest rate projection – assuming policymakers keep their SEK forecasts broadly unchanged.”
“That could see a subtle shift in the timing of the next hike – currently projected to come either later this year or early next. However, we’d still expect the Riksbank to hint at another move by next summer, given that away from interest rate expectations, there are unlikely to be wholesale changes to the forecasts previously set out in April.”
“We see the recent SEK strength as temporary and driven by positioning (late May) and the turnaround in risk appetite (late June). In our view, the bearish case for SEK remains fully in place.”
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