Arne Lohmann Rasmussen
Danske Bank A/S
The main event in the Scandinavian market was the Riksbank announcement this morning. As widely expected the repo rate was kept unchanged at 0.75%. Hence, all focus was on the accompanying Monetary Policy Update. On the dovish side we note that the Riksbank now sees close to a 50/50 % probability of a rate cut in Q3 this year. The average repo rate is now seen at 0.66 in Q3 compared to 0.71% before. The Riksbank also flattens the rate path and it is down up to 40bps in 2015. The Riksbank also rises their unemployment forecast and lowers their inflation forecast. The changes to the rate path is all in all dovish and should help to keep EUR/SEK supported the next couple of weeks.
However, on the other hand we also note that despite the lower inflation forecast and the higher unemployment forecast it was not enough to trigger a rate cut today. We also note that the Riksbank is not “low for longer”. The first rate hike is somewhat surprisingly expected in one year’s time. Furthermore, we can conclude that the dovish camp still only consist of Ekholm and Floden that entered a reservation against the announcement and not Jansson that otherwise seems to have moved in a dovish direction recently. All in all we keep our call for a July rate cut.
The next focal point for the SEK is now the inflation figures tomorrow. Here CPIF is expected to come out at 0.3% y/y. We believe the risk is still tilted to the upside for EUR/SEK here in April and May. Strong resistance in EUR/SEK is seen at 9.0100 and 9.0985. The message today and a low CPIF reading should be able to move us above the first resistance level, whereas the 9.0985 level will probably hold.
The main event for the global FX markets will of course be the Fed minutes tonight. We expect it to keep an optimistic tone, which should keep the USD supported. However, note that the focus on further ECB easing seems to have disappeared again and EUR/USD has started to edge higher once again, trading above 1.38. The EUR/USD is still supported by a high Euro area current account surplus relatively to the US and flows into peripheral bond markets.
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