According to analysts at ING, the quality issues issue with the Swedish labour market data suggests that the Riksbank is unlikely to meaningfully change its cautiously-hawkish bias this week.
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“Policymakers are still likely to pencil in a rate hike over the next six months, albeit the timing will likely be pushed back from the turn of the year and further into 1Q/2Q20.”
“This suggests there’s limited downside to SEK, particularly when the global environment shows some tentative signs of improvement (the decreasing probability of a ‘no deal’ Brexit and the falling odds of an imminent escalation in the US-China trade war).”
“EUR/SEK currently exerts the highest correlation with GBP within the European G10 FX space, which in turn means it can benefit from the pound’s rally.”
“With EUR/SEK showing some modest signs of over-valuation on a short-term basis, the krona downside from the upcoming Riksbank meeting is fairly limited. If anything, risks are skewed to some modest appreciation should the Riksbank stick to its hawkish forward guidance – albeit investors are unlikely to fully buy-in to the rate hike signals.”
“However, beyond the potential support for SEK this week, we continue to reiterate our bearish view on the currency and look for EUR/SEK to reach 11.00. Global economic and trade growth is likely to remain soft, and the uncertainty about the US-China trade conflict will remain in place.”
“The expected growth divergence in 2020 (slowing major DM economies but a rebound in battered EM economies) also doesn’t point to a positive SEK outlook.”
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