On Thursday, SEK faced headwinds from lower-than-expected inflation in Sweden. Economists at Commerzbank analyze Krona’s outlook.

Less pressure on the Riksbank

Thursday’s inflation data for November illustrated that price pressure is continuing to ease – more quickly than consensus had expected. The annual rates of 3.6% for the overall rate and 5.4% for the core rate still remain well above the 2% target but monthly changes point towards falling price pressure, also for the core rate. It can therefore be assumed that Riksbank too will end its rate hike cycle, unless there are unexpected surprises with inflation or the krona depreciates massively. The latter seems unlikely given Riksbank’s interventions.

As the market did not expect a further rate step anyway it is now all about when first rate cuts will follow. Depending on the data, the market will adjust its expectations and bring them forward. However, as ECB rate cut expectations have risen considerably recently the Krona can stand its ground and might even appreciate further.