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Jane Foley, senior FX strategist at Rabobank, points out that tomorrow’s Riksbank policy meeting should provide some clues regarding maintenance of its current policy guidance and will be a major driver for the EUR/SEK cross.

Key Quotes

“Since the Riksbank last met the rise of global economic headwinds suggest that there is risk that other board members will be concerned about signalling less policy accommodation by the end of this year.   That said, given that current guidance is signalling that any rate rise is still several months off, there is scope for the Riksbank to refrain from changing its guidance just yet.   This would keep the central bank in kilter with the ECB.”

“In addition to concerns about the outlook for global growth over the past month or so various recent Swedish economic releases have disappointed.”

“Currently there are several market predictions suggesting that inflation pressures will ease during the course of the year.   That said, with rates still in negative territory and with the value of the SEK having softened since the last Riksbank policy meeting, inflation pressure should find support.”

“Overall, while there may not be enough incentive for the Riksbank to remove the risk of another rate hike in H2 just yet, we would still expect a more cautious tone from the central bank this week.   Insofar as the SEK is the worst performing G10 currency in the year to date, a slightly more dovish central bank should be largely priced in by the market.     That said, with Eurozone growth faltering the currencies on the periphery of the region are likely to remain vulnerable and we see risk of EUR/SEK edge higher towards the 10.55 area on a 3 month view.”