Market Analysis

SEK: Thursday’s Riksbank Minutes Risk

July 3rd’s Swedish central bank policy meeting saw the Riksbank give a somewhat upbeat assessment of Sweden’s economy and up its forecast for CPIF, its favoured measure for inflation which strips out mortgage rates, to 2.1 per cent from 1.9 per cent for both 2018 and 2019. The Riksbank left rates unchanged but the market is still expecting a Swedish rate hike from the current minus 0.5 per cent level in the fourth quarter of 2018. Already, Deputy Governor Henry Ohlsson (for the last three meetings) has voted for an immediate 25 basis point increase. Traders will also be ware that a week ago today Deputy Governor Cecilia Skingsley reiterated that the Swedish central bank intends to “normalise rates in a gradual and responsible way.” Tomorrow will see both the release of Swedish June CPI data, with analysts at Dutch Bank ING expecting a 2.3 per cent print, and the publication of the minutes of last week’s Riksbank meeting. Traders will no doubt be looking at both for indicators as to the Swedish krone’s (EURSEK, NOKSEK, USDSEK) next direction. ING has a concern that the markets took “an overly-hawkish interpretation of the [last] Riksbank meeting” which “could be exposed with the release of the Riksbank minutes.” The Dutch firm may have a point. While market expectations for a Riksbank rate hike in the fourth quarter of 2018 do chime with the Swedish central bank’s own message, the Riksbank will be acutely aware that a Swedish rate hike in Q4 2018 already means moving before the European Central Bank which is on record as saying its own benchmark rate will remain unchanged through summer 2019. Lest it ignites too much of a SEK rally, the Swedish central bank might opt for a degree of circumspection in the minutes.