Swedish Krona: Riksbank tightening supports SEK against US Dollar - BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes USD/SEK is firmer on broad US Dollar (USD) strength, while Sweden’s September Consumer Price Index (CPI) data were mixed. Adjusted inflation near 2% keeps a Riksbank rate hike in play, and the bank’s guidance plus market pricing for 75–100 bps of tightening over the next year are seen limiting policy divergence with the Federal Reserve, posing a headwind for USD/SEK.

Swedish inflation keeps hikes in play

"USD/SEK is firmer on broad USD strength. Sweden September CPI was mixed. CPIF matched consensus and Riksbank projection at 1.5% y/y vs. 0.7% in August. CPIF ex-energy was cooler than anticipated at 0.5% y/y (consensus and Riksbank projection: 0.7% y/y) vs. 0.5% in August."

"Adjusted for temporary fiscal policy measures, inflation is closer to 2% and keeps a policy rate hike in play."

"The Riksbank noted in September that “the policy rate should be raised more going forward than projected in the June forecast” and signaled again it expects “the increases to the policy rate will begin this year.”"

"In the next twelve months, the Riksbank’s policy rate forecast implies over 75bps of tightening to 2.50% while the swaps curve price in over 100bps of hikes to 2.75%. That limits policy divergence with the Fed and is a headwind for USD/SEK."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)