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SEK and NOK Hold Breath Ahead of FOMC Meeting Minutes

SEK and NOK Hold Breath Ahead of FOMC Meeting Minutes

Dimitri Zabelin, Analyst

SEK, NOK TALKING POINTS – FOMC MEETING MINUTES, USDSEK, USDNOK

  • SEK and NOK traders are preparing for release of FOMC meeting minutes
  • Krona volatility may be compounded by Riksbank financial stability report
  • Trade war, global growth fears hang over Norway and Sweden economies

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Norwegian Krone and Swedish Krona crosses with the US Dollar will experience higher-than-usual volatility after the FOMC meeting minutes are published. Since February, economic data out of the US has been tending to underperform relative to economists’ expectations. While the US-China trade war has had a relatively limited impact on Fed monetary policy, that could change.

St. Louis Fed President James Bullard yesterday said in an interview that if US-China tariffs remain in place for another six months, it could begin to impact the central bank’s monetary policy. The trade deal between the two superpowers carries additional weight because of US President Donald Trump’s intention of pushing through a $2 trillion fiscal reform after an accord is reached between the US and China.

The inflationary pressure that would likely ensue may then prompt the Fed to adjust its monetary positioning from neutral to more hawkish. At the last meeting, Fed Chairman Jerome Powell said that the lull of price growth was “transitory”. Assuming US economic growth shows strength and inflationary pressure picks up, it may give the Fed impetus to raise rates against what policymakers would perceive as a favorable backdrop.

Due to the gravity of the FOMC meeting minutes, the market reaction from it may overshadow the potential volatility that would arise from the Riksbank’s publication of the Financial Stability Report. Interest rates in Sweden are expected to hold at least throughout summer and the early months of autumn. This in large part is due to headline risks of Brexit, the US-China trade war and slowing European growth.

Unless these fundamental risks are resolved or significantly reduced in their capacity to disrupt markets, Riksbank officials may have a hard time finding a justification to raise rates. Dovish expectations from the Swedish central bank may help explain why the Krona has been suffering all year while the country’s benchmark equity index has been skyrocketing – likely from expectations of continued loose credit.

CHART OF THE DAY: KRONA WEIGHTED INDEX AT LOWEST POINT SINCE 2009

Chart Showing Krona Weighed Index

NOK, SEK TRADING RESOURCES

--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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