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Swedish Krona, unlikely to benefit from USD weakness - Commerzbank

FXStreet (Delhi) – Thu Lan Nguyen, Research Analyst at Commerzbank, suggests that the ongoing weakness of US inflation data should support the positive risk environment in the week ahead but the Swedish krona, however, is unlikely to benefit, as domestic inflation figures are likely to be muted, as well.

Key Quotes

“Last week, the US dollar depreciated on a broad basis, driven by the disappointing US employment report. As a result, markets have turned increasingly doubtful as to whether the Fed will indeed raise rates this year. But one man’s curse is another man’s blessing.”

“Pessimistic US interest rate expectations are supporting the risk appetite of investors. The main beneficiaries are the emerging market currencies, but also AUD, NZD, CAD and NOK.”

“Data due to be released in the week ahead is unlikely to change market scepticism surrounding US rate hikes, as US consumer price data ought to underline why the Fed is currently reluctant to raise rates.”

“In combination with further declining long-term inflation expectations, these factors, in fact, are unlikely to convince the market of a near-term lift-off (a first rate increase) by the Fed.”

“The situation in the UK and Sweden is similar. Upcoming inflation data in these countries is also likely to remain weak. In Sweden, in particular, the inflation trend is increasingly reminiscent of the situation in Japan, as inflation has been moving near or even below zero for nearly three years now.”

“Moreover, the central bank’s preferred measure of the core rate is also moving sideways at a low level. This suggests that the Riksbank will continue to do everything in its power to prevent an appreciation of the SEK. Should inflation slow further, it might even be interested in weakening the currency in order to provide some impetus to inflation.”

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