Swedish Krona Rallies After Inflation Beats Expectations

The Swedish krona rallied against its major rivals today. That included the Great Britain pound, but the sterling has managed to rebound by now thanks to the positive Brexit headlines. The main reason for the krona’s rally was better-than-expected inflation data.
Ahead of today’s report, ING predicted that annual inflation would slow to 1.1%-1.2%. Yet the actual data from Statistics Sweden revealed that the Consumer Price Index rose by 1.3% in September from the previous year, the same as in August. The monthly inflation rate improved sharply from -0.5% to 0.4%.
Stable inflation increased chances for an interest rate hike predicted by the Riksbank during its September monetary policy meeting. Yet ING voiced doubts, saying:

At the Riksbank’s September meeting, policymakers signalled rates could rise again as soon as the end of this year. But with global growth concerns mounting and inflation well below target, that looks increasingly unlikely to materialise.

Sweden’s National Institute of Economic Research echoed such doubts, stating:

The Swedish economy has clearly entered a cooling down phase. Inflation will remain clearly below 2% and the Riksbank is therefore not expected to hike rates this year or next.

Torbjorn Isaksson, an economist at Nordea, went further, predicting an interest rate cut:

The bank can ignore temporary swings in inflation as long as expectations are anchored at the target, and the downward trend is thus a concern for the Riksbank, supporting our view of a rate cut around the turn of the year.

USD/SEK dropped from 9.9517 to 9.8431 as of 19:42 GMT today. EUR/SEK sank from 10.9174 to 10.8347. SEK/GBP was down from 12.1425 to 12.0118 intraday but has bounced to 12.2527 by now, trading near the highest level since May 22.

If you have any questions, comments, or opinions regarding the Swedish Krona, feel free to post them using the commentary form below.

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