FxWirePro: Stay short in GBP/SEK with ideal risk-reward profiling on cautious Riksbank

The Riksbank remains cautious. It is still saying nothing about the end of the government bond purchasing programme at the end of the year and does not envisage a rate hike before mid-2018.

Consequently, the interest rate path remains unchanged. However, the Bank has raised its growth and inflation forecasts. In future, the CPIF (consumer price index with fixed mortgage rates) will be the inflation target. All in all, the Riksbank's reticence suggests that it wants to wait and see what the ECB does, in order not to risk strong krona gains. 

Growing worries over the slow pace of Brexit negotiations as the two-year deadline ticks down combined with UK growth deceleration should keep sterling under pressure. Against this is the strong economic and inflation upturn in Sweden, which should continue to buoy the krona.

Although the Riksbank has been vigilant, the time for policy normalization is drawing closer and the market is forward-looking. The recent pullback in GBPSEK offers a good entry opportunity.

Stay short in spot GBPSEK at reference 10.4167, with a strict stop at 10.70 levels and targeting 9.70. A straight forward spot FX trade.

We reckon that the main considerable risk would be a hurried agreement on the Brexit withdrawal terms in late 2017 that would pave the way for EU-UK free trade talks. Another risk would be an abrupt growth slowdown in Sweden.