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Swedish krona likely to witness gradual uptrend vs euro on slower monetary policy normalization, says Commerzbank

The Swedish krona is expected to witness a gradual upward trend vs the euro, on expectations of a slower normalization in the country’s monetary policy, although the process is seen to happen at a rate faster than that in the Eurozone, according to the latest research report from Commerzbank.

Admittedly, Swedish inflation figures for October were lower than expected. And yes, the inflation trend in Sweden has reversed. But the economy is booming and the unemployment rate is trending downwards, which suggests that wages will rise in the medium term.

Therefore, the Riksbank won’t reconsider its stance due to one single inflation number. By now, the market has almost completely priced in a rate hike before the end of the year.

Recent rather hawkish comments by the members of the Executive Board signal this as well. Conversely, this means that an interest rate hike in December will not lead to an excessive SEK appreciation, as the market is prepared for it. All the more reason for the Riksbank not to hesitate any longer.

"With EUR/SEK levels around 10.20-30, the Riksbank can certainly live well without having to fear a too strong krona, which could exert downward pressure on inflation again. Especially as it will clearly communicate that further interest rate steps will follow only very slowly," the report added.

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