Swedish Krona Could Rise as Rate Cuts Likely Finished — Market Talk

There was a big upside inflation surprise on Monday in Sweden, which has killed expectations for another rate cut from the Riksbank as soon as next month, said MUFG.

The release of the latest consumer price index report from Sweden revealed that core inflation (CPIF excluding energy) jumped to 3.3% year over year in June up from 2.5% in May.

The Riksbank will now have to wait for confirmation as to whether the pick-up will prove temporary before considering cutting rates again to support the weak economic recovery in Sweden, stated MUFG.

The hawkish repricing of Riksbank expectations has helped to prevent from breaking above resistance from the 200-day moving average at just above the 11.200-level, added the bank.

The Swedish krona is likely to fall after the Riksbank left the door open to another interest-rate cut, Danske Bank analyst Stefan Mellin says. Sweden's central bank last week cut rates by 25 basis points to 2.0% and said its forecasts entail some probability of another rate cut this year. Meanwhile, the past two months have seen outflows from Swedish equities and renewed appetite for European and global equities, Mellin says. "We do not agree with the general notion that the krona is fundamentally undervalued and instead deem [euro versus the krona] as being close to short- and medium-term fair value," he says. Danske expects the euro to rise to 11.30 krona in 12 months, from 11.1420 currently. (renae.dyer@wsj.com)

The krona (SEK) languishes in G10 early Wednesday after Sweden's Riksbank cut rates by 25bp to 2.0% and signalled another reduction is probable this year, said Societe Generale.

The central bank says that weaker demand in the economy is expected to contribute to inflation being lower going forward than in the most recent forecast, noted SocGen.

The Riksbank lowered the gross domestic product growth forecast for this year by 0.7pp to 1.2%. Estimates for headline consumer price index were lowered by 0.3pp to 0.7% for this year and by 0.2pp to 1.6% for 2026 before returning to 2.1% in 2027.

The path for the policy rate was lowered by 0.2pp to 2.1% for 2025 and by 0.4pp to 1.9% for 2026 and 2027.

faces short-term resistance near the May high of 11.02, wrote the bank in a note to clients. has consistently struggled to overcome the 50dma after fading below in February.

The 9.63/9.65 area is a "crucial" topside hurdle, support is located near 9.37/9.35, added SocGen.

Geopolitical events are causing a temporary dislocation from macro-driven price action in , said ING.

Even before the publication of very soft United States retail sales, the German ZEW had come in quite strong, with the "expectations" index essentially back at pre-'Liberation Day' levels, wrote the bank in a note. Although the overbought and overvalued suggests further corrections, the preference to buy on dips due to structural bearish views on the US dollar may help limit any corrections while oil prices absorb the geopolitical shock.

So while the US dollar may indeed regain some near-term momentum, ING doesn't think this will be enough to take sustainably back to the 1.12-1.13 area. The bank's near-term target remains 1.14 for the pair.

Wednesday, the eurozone data calendar is light, but there are plenty of European Central Bank speakers. Given the sensitivity of the ECB's inflation projections to oil price swings, ING expects even more cautiousness by the Governing Council in light of recent events. Markets will probably feel little pressure to price back a rate cut earlier than December for now.

Elsewhere in Europe, Sweden's Riksbank cut rates by 25bps. The risks are, however, skewed to the hawkish side when it comes to forward-looking language, which can offset the rate cut impact on the krona (SEK). The krona's limited reaction to geopolitical risk reinforces its new role as a stable currency, and ING still sees gradual depreciation in the coming months.

The United Kingdom earlier on Wednesday released consumer price index figures for May, pointed out the bank. While the headline reading slowed a tad less than expected to 3.4% year over year and core was in line with consensus at 3.5%, the closely-monitored services CPI came in a bit below expectations at 4.7% with the expected at 4.8%.

The Bank of England's recent hawkish turn hasn't been endorsed by data so far, as jobs, growth and now inflation figures have come in on the soft side. But it raises the risk of a slightly more dovish tone at Thursday's policy meeting, although not of a cut, which remains rather unlikely.

For now, there aren't many arguments against strength, added ING. Geopolitical risks generally harm sterling (GBP) more than the euro (EUR), and the data flow has been GBP-negative of late.

Unless the BoE surprises with a more hawkish-than-expected message on Thursday, a move to 0.860 may well be on the cards.

In Romania, the media is reporting some progress in negotiations on the government and fiscal package that should be unveiled this week. Media rumours suggest a broad coalition and a medium-sized fiscal package that should push this year's deficit below 8% of gross domestic product, noted the bank.

The market reacted on Tuesday with a rally in Romanian government bonds, but confirmation will likely come on Friday. is also gradually grinding lower with Tuesday's rebound from 5.02 looking like a "limit," according to ING.

The krona falls to a six-week low against the euro after the Riksbank cut interest rates by 25 basis points to 2.0% and signaled further cuts. The central bank said its forecasts entail some probability of another rate cut this year. However, the outlook for inflation and economic activity is uncertain amid risks stemming from trade policy and geopolitical tensions, it said. The 25bp cut was widely expected but some analysts thought it could mark the end of the easing cycle. The euro rises to a high of 11.0156 krona after the decision from 10.9853 beforehand. (renae.dyer@wsj.com)