(27 APRIL 2018)DAILY MARKET BRIEF 2:Riksbank monetary decision doesn’t support the krona

Weakening against the single currency since August 2017, the Swedish krona takes a kicking, especially since the beginning of the year, depreciating by 9.62% and 6.78% respectively. Yesterday’s Riksbank monetary policy decision did not help appease the wound, as March inflation data remained weaker than expected for central bankers, given at 0.30% and 1.90% (prior: 0.70% and 1.60%) on month-over-month and year-over-year basis. Accordingly, Riksbank’s decision to maintain its key rate at -0.50% (unchanged since February 2016), came in disagreement with the market who was expecting a 25 basis points rise, pushing the EUR/SEK pair higher by 1.36% this week.

As the structural economy recovers from recent lows, with a recovery in March trade balance who remained in negative territory for three months in a row, an upturn in domestic consumption and improving manufacturing confidence, we therefore would assume that the Riksbank normalization policy start won’t take long, unless the ECB maintains its stance, a very likely scenario since Draghi’s statement during the same day on the EU economy momentum slowdown.

The EUR/SEK pair trades at its September 2009 level, given at 10.5446. There is still a long way to go before reaching strong resistance at 11.16 (23/06/2009 high). The pair is heading along the 10.55 range in the short-term.

By Vincent Mivelaz