Weaker SEK is on the cards? – Nordea Markets

According to analysts at Nordea Markets, despite an inflation disappointment in Sweden in the past week, the SEK has fared well. 

Key Quotes

“Usually, when CPIF inflation disappoints by 0.2pp on the month it causes or coincides with a ~4% weakening of the trade-weighted SEK.”

“Moreover, the Swedish economic surprise index is firmly in negative territory. This usually indicates that a weaker SEK is on the cards.”

“Sell-on-rallies does however seem to be the name of the game for the EUR/SEK though. Why? Maybe market participants have concluded that the worse the outlook, the more likely a December hike becomes as it’s now or never!”

“Aside from weaker inflation, weaker macro, downside risks to domestic and global growth, the risks for greater volatility, risks (chances?) of a new election, ongoing QE-flows (while ECB is set to stop QE), an already well-priced December rate hike (16/25bp), we can add PPM flows as a SEK-negative in coming weeks.”

“More often than not EUR/SEK tends to glide higher ahead of the start of the PPM flows(which we have assumed to be December 10 for now).”