Inflation focus and central bank's policy stance has unwound all the appreciation of EURSEK following last week's larger-than-expected Riksbank's benchmark repo rate cut by 15 bps to -0.5% on February 11th 2016, as inflation is expected to be lower this year than previously anticipated.

Subsequently, the consumer prices in Sweden increased by 0.8%YoY in January of 2016, accelerating from a 0.1% rise in the previous month and above market expectations.

Upward pressure came from: transport (+2.4%); clothing and footwear (+2.3%); food and non-alcoholic beverages (+2.2%); restaurants and hotels (+2.8%); miscellaneous goods and services (+2.4%) and alcoholic beverages and tobacco (+1.1%).

In contrast, downward pressure came from: post and telecommunications (-6.4%) and housing (-1%). On a monthly basis, prices grew 0.3%, following a 0.1% rise in the previous month.

We continue to reckon that fundamentals are not really conducive of EURSEK at current levels and continue to look for a stronger SEK as more aggressive Riksbank rate cuts seem unlikely.

We expect the Bank to now adopt a wait-and-see attitude and only potentially extend its QE program until the end of 2016, from June 2016 currently.

We would look forward for a very limited price effect only on the SEK on a time extension of QE,. As a result, we look to initiate short EURSEK positions ahead of the March and June ECB meetings once market volatility dissipates and although acknowledging some upside risks to our EURSEK forecast path.

Elsewhere, the ECB delivered the extended QE programme we were looking for (now due to run at least until March 2017) but not the full depo cut we had in mind (-10bps instead of -20bps). There were also many looking for an expanded pace of asset purchases but the ECB opted instead for a programme of reinvestment as existing holdings mature.

Elsewhere, monthly CPI series are expected to contract on renewed declines in oil prices for the month of January, only in such circumstances Swedish central bank may act upon aggressively, which in turn may provide some impetus to EURSEK spot FX moves. We expect medium term expectations to remain anchored, unlike several other developed countries but see risks to the downside for near-term expectations in the context of global disinflationary pressures.