Date: 09 Aug 2018

Analysts expect Friday’s Swedish inflation (CPIF) data for July (to be released 0830h UK time) to come in at 2.2 per cent on an annualized basis, above 2.0 per cent target of Sweden’s central bank, the Riksbank. The currency market might ordinarily see such an outcome as positive for the SEK (EURSEK, USDSEK, NOKSEK) but the devil may be in the detail. The hot and dry July in Sweden caused lower water levels in the reservoirs supplying Swedish hydro-electric power stations resulting in higher electricity prices which should be evidenced in today’s data. But it seems unlikely that such a development will sway the Riksbank as, by definition, summer heat (even a year as exceptional as 2018) is a seasonal factor. Riksbank Governor Stefan Ingves said in July’s Riksbank meeting minutes that “in order for inflation to continue to develop in line with the target, further support is needed from an expansionary monetary policy for a while longer. In my view, changing monetary policy in a less expansionary direction at this stage is associated with risks and may lead to setbacks regarding the development of inflation.” It seems unlikely therefore that the Riksbank will get hot and bothered about any temperature-assisted rise in Swedish inflation data for July, and if that’s the case, why should the currency market?

by Neal Kimberley, External Currency Analyst.