EUR/SEK aims higher in the near term – Danske Bank

In view of Mathias Mogensen, Analyst at Danske Bank, the Swedish Krona could come under further pressure in light of the release of key data and the Riksbank.

Key Quotes

“In Sweden, the inflation figures on Tuesday will be monitored closely as the outcome is likely to be pivotal for the Riksbank’s monetary policy announcement on 21 December. Our estimates for November CPIF and CPIF excluding energy are 1.56% y/y and 1.21% y/y, respectively. This is 0.15pp and 0.17pp below the Riksbank’s corresponding respective estimates and implies that the difference compared with October remains”.

“Lower-than-expected inflation is the most important reason why we still expect the Riksbank to extend its QE purchases by another SEK30bn and also expect it to deliver a 10bp rate cut in December. While the QE extension is fully expected in the market, we note that a rate cut is not priced at all”.

“According to our short term financial models, a 10bp widening of the two-year SEK-EUR interest rate swap spread would – all else being equal – lead to a 20 figure increase in EUR/SEK. Hence, we see a large digital risk around the Riksbank meeting in the sense that EUR/SEK could spike higher temporarily in the event of a rate cut, while no cut would be fairly neutral for EUR/SEK”.