Short sightedness in EUR-SEK

SEK reacted with gains yesterday when the low inflation data for the euro zone was published. That may well make sense short term as low inflation data in the euro zone increases the likelihood of the ECB extending or prolonging its QE programme,  says Commerzbank.

However, let's just look one step further ahead: why is inflation in Sweden so low? One of the reasons behind this is the fact that inflation of one of Sweden's most important trade partners, the euro zone, is so low. That is the reason why Riksbank is hoping for a weaker currency: so as to fuel inflation via higher import prices. 

However, sadly this mechanism is not working as had been hoped and Sweden's inflation rate remains below zero. So if the inflation rate in the euro zone is low the issue of deflation can become even more serious for Riksbank in the foreseeable future. And can therefore force it to increase its QE programme further. We will have to wait until mid-October when Swedish consumer prices for September are published to find out more. 

Until then the market can happily buy SEK - today's September PMI might well provide a reason for that, as it will confirm the picture of a relatively robust economy. Those not affected by short sightedness will use lower EUR-SEK levels as a buying opportunity though, added Commerzbank.