SEK slightly lower following CPI, Riksbank minutes

Summary:

• Swedish inflation more or less matches expectations in June
• Riksbank minutes confirm the bank remains on track to hike later this year
• EURSEK keeps climbing and nearing its pivotal technical level

The Swedish krona weakened slightly in the aftermath of the June’s inflation report as well as Riksbank minutes even as the central bank seemed to remain on course to deliver a rate increase later this year. As of 9:00 am BST the SEK is placed among the worst performing currencies in the G10 basket, however, the loss is not particularly relevant.

The weaker exchange rate foster the quicker price growth. Source: Macrobond, XTB Research

First and foremost let’s notice that the inflationary report more or less matched economists’ expectations in June showing headline CPI accelerating to 2.1% from 1.9% (the consensus had pointed to 2.1%), and core price growth speeding up to 2.2% from 2.1% in May - this reading slightly missed the median estimate placed at 2.3%. Overall, the data seems to be accordance with the current stance of Swedish policy makers with regard to a rate hike possibly needed at the end of this year. However, do notice that price growth is likely to go off the boil to some extent in annual terms as a statistical base for July is much more demanding (there was a pick-up in the past year to 2.4% from 1.9% between June and July), hence we could see price growth backing again toward its 2% threshold. Nonetheless, what is particularly important from a monetary policy point of view a base effect’s adverse impact is expected to wear off during the fourth quarter possibly making sure the Riksbank that a rate increase will be delivered in time. Having said that, among risks to this prospect (reaching the inflation objective in a durable fashion) one may single out stubbornly weak growth of services prices, but this is not a Swedish phenomenon.

On the flip side, the minutes from the meeting held earlier this month unveiled a lot of disputes among Riksbank members, it was not something new though. While the underlying rhetoric seems to continuously point to the high likelihood of a rate rise in the last quarter, some members voiced their doubts suggesting that the first move might be rather delayed than brought forward. So as to counterbalance this view one needs to mention Floden’s remarks who indicated that an increase could take place even earlier than the fourth quarter - September. In turn, Jansson alluded to the latest SEK underperformance noticing that the krona had "developed more weakly than expected", whereas a discussion pertaining to the exchange rate volatility’s impact was also taken place. Bear in mind that the SEK has been the most beleaguered major currency against the shared currency since the beginning of the year unlike the NOK which has enjoyed the highest rate of return in the corresponding period of time. Given the long-term backdrop (both SEK and NOK are vastly undervalued) and weighing it against getting more hawkish intents of both Scandinavian central banks one may suspect that both currencies could have the buoyant outlook ahead of themselves.

The EURSEK is gaining for the third session on the trot breaching its quite an important resistance at 10.33. Once this level, being underpinned by two Fibonacci retracements, is finally broken one cannot rule out another leg higher toward 10.46 where increased activity of sellers might re-emerge. By and large, this level seems to be a line in the sand for the time being from where SEK buyers are likely to take control anew. Source: xStation5