ING’s FX Strategist Francesco Pesole notes Sweden’s core CPIF excluding energy rose to 0.6% in July, giving the Swedish Krona (SEK) a modest boost, while headline inflation slowed as expected. He argues that even after adjusting for temporary tax effects, inflation is not strong enough to justify market pricing of Riksbank tightening, maintaining a no-hike view and a year-end EUR/SEK target of 10.80.
Hotter core yet policy on hold
“Sweden’s CPIF excluding energy surprisingly accelerated from 0.4% to 0.6% in July. The headline figure slowed as expected from 1.3% to 0.7%. The slightly hot print in core has prompted a small positive reaction in SEK this morning.”
“However, markets were already fully pricing in a Riksbank hike by year-end, which limited the upside for front-end SEK rates.”
“Even after adjusting for the temporary tax measures that are artificially suppressing prices, the inflation outlook does not look strong enough to justify such firm market conviction on Riksbank tightening.”
“We recognise that hawkish risks have edged higher, but our baseline view remains unchanged: no hikes before year-end. In turn, we continue to see a relatively shallow path for EUR/SEK and target 10.80 by year-end.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
