High market uncertainty to remain an underlying burden for the SEK – Commerzbank
|The Riksbank did frontloading in November by cutting the key interest rate by 50 basis points from 3.25% to 2.75%, while signaling that more could come. The policy rate may also be cut in December and during the first half of 2025, in line with what was communicated in September, Commerzbank’s FX analyst Antje Praefcke notes.
SEK's upside potential is limited given the Riksbank's dovish stance
“The Riksbank will publish the new Monetary Policy Report with the new forecasts and the interest rate path on Thursday at its interest rate meeting. The question is how it assesses the further outlook for inflation and growth, and how far it is still willing to lower the policy rate. Currently, the market expects a terminal rate of 2%.”
“The Riksbank now sees the risk that inflation could fall to too low levels due to weak growth. It wants to counteract this by lowering interest rates. Although the latest indicators show that there are initial signs of a recovery, the coming year is likely to be rather difficult given the weak growth in the euro zone. This suggests that the Riksbank will stick to its cutting cycle for the time being and continue to sound dovish in order to avoid a prolonged undershooting of inflation. If in doubt, the Riksbank will cut even further below the currently expected terminal rate of 2%.”
“If the Riksbank signals a lower terminal rate than before on Thursday, underpinned by weaker growth and lower inflation forecasts, the SEK could come under renewed short-term downward pressure. However, since the market already perceives the Riksbank as dovish, the impact is likely to be limited and ultimately neutral for the SEK. Nevertheless, the SEK's upside potential is equally limited given the Riksbank's dovish stance. Especially with the new US president-elect Trump taking office and the risk of high tariffs being introduced, market uncertainty will remain elevated, which could remain an underlying burden for the SEK.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.