Sweden Riksbank still watching SEK strength

The current bond purchase program continues through September, but long-term yields have increased, perhaps reflecting liquidity concerns in the bond market and the move in German bund yields. Higher long-term yields and a stronger SEK, in spite of QE, run counter to the expectation and aims of the Riksbank. 

With reduced summer liquidity upon us, the pace of purchases will be adjusted to account for this. With this in mind and despite the encouraging inflation figures, the Riksbank may deliver a small cut in the Repo rate at the July meeting to avoid excessive SEK strength and reinforce their focus on bringing inflation back to target. The purchase program size will likely remain unchanged, but expect renewed emphasis on further actions that the Riksbank can take.
SEK has strengthened steadily through June as inflation and inflation expectations recovered, modestly, dampening expectations for further policy action from the Riksbank in July.

SEK's level is a key focus for the Riksbank, and direct intervention in the currency markets has been brought up a number of times as an option. Surprises from the Riksbank cannot be ruled out between the July and September meetings, but we don't expect inter-meeting action in the absence of sharp SEK strengthening.

"SEK could be at 9.20 in Q3 15, and 9.10 for yearend", forecasts Bank of America.

The Swedish economy continues to perfom well, and should be boosted by a pick-up in the Euro area. However the Riksbank will maintain pressure on SEK, and EUR/SEK could stay in the 9.20 - 9.40 range it has been trading in over the shorter term.