SEK: Bullish Heading into the Riksbank Meeting

In the past week we’ve highlighted a few pieces of research that have looked at potential risks to the Swedish housing market, which has already had some impact on weakening the SEK. However ahead of tomorrow’s Riksbank rate announcement, JPMorgan is bullish. Analyst Meera Chandon thinks that the Riksbank will finally announce the end of QE after nearly three years of initiation. Beyond QE, her expectation is that the Riksbank will also maintain its forecast of a rate hike in July 2018. The case for a less dovish stance from the Riksbank has been intact for a long time, given the combination of strong growth, an output gap that is already at +2%,, and rising inflation, but this has intensified recently with the latest inflation data showing that CPIF is back at target and also 0.3%pt above the Riksbank’s forecast. Moreover, says Chandon, activity data is taking yet another leg up, as indicated by PMI data and our preferred smoother measure of EASI—the 6-week moving average—is the second highest in G10. As for the housing market,  Chandon senses less concern from the central bank about the current correction in house prices and given the strong economic fundamentals, the fall out from this will be absorbed. Against this backdrop of firmer growth and inflation, cheap currency valuations and less emphasis by the Riksbank on housing, JPMorgan think that the risk reward favors holding long SEK exposure. The full note is available to JPM clients on Morgan Markets.