SEK: Time for stabilisation? – ING

Sweden released GDP figures this morning, which confirmed expectations for a QoQ contraction in the second quarter. The print was -0.3% QoQ above the consensus -0.8%. A grim growth story in Sweden has been one of the key drivers of the Riksbank’s dovishness. When adding a loosening jobs market and disinflation, there are few doubts that more easing is on the way, ING’s FX strategist Francesco Pesole notes.

EUR/SEK trades close to the 11.30 target

“The question is, at this point, whether the Riksbank will cut two or three more times this year. Markets are pricing in easing in excess of 80bp over the last three meetings of 2024, which suggests there is some moderate speculation for a 50bp move too. That appears too dovish to us, considering Swedish rates have already been trimmed to 3.5%, and a potential slower-than-expected easing by the ECB may be a concern for the Riksbank.”

“Some hawkish repricing can help SEK in September, but the krona has been primarily responsive to external inputs, and conditions may not turn much more accommodative for high-beta currencies than they are now.”

“Markets may price in more Fed easing if they see higher US recession risks, which may, however, lead to more stock market instability and ultimately hit a highly risk-sensitive currency like SEK. Now that we are close to the 11.30 target we had set about a month ago for EUR/SEK, we think some short-term stabilisation looks more likely than another big directional move.”