USD/SEK May Trade Higher on Soft CPI Data - Nordic Growth to Slow

2019-01-14 03:00:00 Dimitri Zabelin, Analyst

TALKING POINTS – SWEDEN CPI, USD/SEK, RIKSBANK

USD/SEK to rise on soft CPI data
Sweden economy to slow in 2019
USD/SEK to reach into new range

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USD/SEK may rise upon the release of Sweden’s CPI data that will likely fall short of economist’s expectations. The forecast for year-on-year inflation currently stands at 2.0%, with the previous report at the same level. Other CPI data reports are also scheduled for the same day 08:30 GMT.

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Economic data in Sweden across the board has been gradually underperforming and is part of a broader trend investors are seeing throughout the European continent. Riksbank minutes from the December policy meeting revealed that officials are showing greater concern over an unexpectedly greater slowdown in inflation and GDP. This is also part of a broader trend Nordic countries are experiencing as European growth slows.

Sweden’s central bank – along with Norway’s – have adopted a gradualist approach to monetary policy, considering the slowdown in domestic growth and uncertainty in global affairs. Headwinds that we saw in 2018 are likely to blow into 2019 and impact economic growth and possibly delay the Riksbank’s intended rate hike in the latter half of this year.

The Krona in this environment is not likely to fair well, opening up the door for potential upward movement in USD/SEK.

In the past three weeks the pair has rebounded from the 8.8469 support and is attempting to re-enter the previous support range between 8.9489- 9.0086. If CPI data falls short of expectations, it is likely the pair will breach 8.9489 and enter into the range. The price movement since January 10 also seems to suggest that there is underlying momentum pushing USD/SEK higher.

USD/SEK – Daily Chart