This year, the Swedish krona has been trading in narrow ranges. The EUR/SEK pair has only just risen over the 10.000 to 10.200 level. MUFG Bank economists assess the risk balance for SEK ahead of the Riksbank meeting, which could put an end to this year’s range trading.
“Market players, like those following other G10 central banks, will be looking for evidence that the Riksbank will follow the Fed and telegraph a hawkish policy move in response to increased inflation in the short term. Those hawkish expectations, however, are likely to be disappointed, as the Riksbank remains one of the more dovish G10 central banks.”
“The Riksbank is expected to announce minor updates to its growth and inflation estimates, but will keep rates unchanged until 2024. Market investors who are already pricing in earlier rate hikes from mid-2023 are unlikely to be encouraged further. Plans have already been worked out to halt quantitative easing this year and keep the balance sheet size the same next year. We foresee a minimal SEK reaction, similar to the two previous Riksbank meetings this year.”
“The SEK’s downside risks have intensified as a result of the Fed’s hawkish policy change. A more protracted sell-off in the SEK will, however, necessitate a further correction lower for risk assets. The Riksbank’s rate hike plans could be pushed ahead next week, reducing the negative risks and encouraging a firmer SEK. We don’t see this happening because the Riksbank is still dovish.”
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