SEK likely to appreciate vs euro owing to continued monetary policy normalisation in Sweden, says Commerzbank

The Swedish krona is expected to appreciate against the euro owing to the continued normalisation of monetary policy in Sweden, according to the latest research report from Commerzbank.

Riksbank’s Executive Board is likely to have breathed a sigh of relief following the last set of inflation data. In April inflation climbed back to its inflation target, following a period of weakness. The underlying trend has also turned and is pointing upwards, and as a result Riksbank can be pleased with itself as it had always assumed that the weakness at the start of the year was of a temporary nature.

At its last meeting in April Riksbank lowered its rate path as it generally expects slightly lower inflation data than before – in line with many other central banks that have become more cautious over the past months as regards a normalisation of their monetary policies.

The weak start for the economy in Q1 is also likely to confirm Riksbank in its more cautious approach. However, the last April inflation data justifies Riksbank’s moderately restrictive approach and points more towards a rate step in December rather than in February, the report added.

Meanwhile, member of the Executive Board Cecilia Skingsley does not see any issues with a stronger krona when it comes to the inflation target. However, risk aversion on the market, driven by concerns about the trade conflict, could always throw the spanner into SEK’s works, Commerzbank further noted in the report.