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Long USD/SEK on ongoing Fed/Risksbank policies - JPMorgan

FXStreet (Bali) - JP Morgan FX Strategists recommend re-entering USD longs vs SEK, noting an ongoing divergence between Risksbank and Fed monetary policies.

Key Quotes

"The motivation for this trade is the ongoing divergence between Risksbank and Fed monetary policies, which is only going to widen further. As noted above, US rates are look low relative to the Fed’s own targets and warrant additional term premium. As this gets priced into markets, it will be supportive of the USD."

"On the other hand, SEK should continue to be weighed down by Riksbank’s dovish stance, which was also reiterated in the minutes last week. Some members believed that monetary policy should react asymmetrically to inflation (i.e. that higher than expected inflation does not necessarily have to lead to a less expansionary monetary policy)."

"Even Governor Ingves said he did not think it was a problem in inflation was slightly above target for sometime. And even though Sweden's 2Q GDP was stronger than expected at 0.7%q/q, the data for 3Q has been mixed thus far (the ETI survey improved, while the PMI data were down both in the manufacturing and the services sector; hard data such as IP and retail sales were down in July), thus suggesting some slowing in growth."

"Finally, the weekend elections resulted in victory for the opposition but with a minority as expected (43.7% of the votes).The incumbent Alliance coalition garnered 39.3% of the votes and the far-right Sweden Democrats gathered 12.9% of the votes. Formation of the government will take some time and the key question now is whether the Alliance would be happy to form a government with tacit support of the Sweden Democrats, or whether the opposition is able to form a government. The developments over the weekend could not have been less decisive, which leaves investors facing a period of uncertaint

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