GBP/SEK Exchange Rate Rallies as Swedish Inflation Disappoints

Worse than Expected Swedish Inflation Prompts GBP/SEK Gains

The Pound to Swedish Krona (GBP/SEK) exchange rate rallied from a two-month low this morning as Swedish inflation came in below expectations for December.

At the time of writing GBP/SEK is up 0.32% from its opening levels, helping the pairing recoup some of Thursday’s losses.

Swedish Krona (SEK) Exchange Rates Tumble as Inflation Misses

The Swedish Krona relinquished some of its recent gains against the Pound this morning as Sweden’s latest CPI figures disappointed markets.

The figures revealed that inflation stumbled from 1.9% to 1.7% in December, falling even further than the modest dip to 1.8% forecast by economists.

The lacklustre result highlights the underlying concerns that have made the Riksbank dovish about the possibility of raising interest rates despite Sweden’s robust economic performance.

The Riksbank currently maintains one of the lowest interest rates in the world at -0.5%, with many policymakers reluctant to hike rates before the European Central Bank (ECB) over fears it would risk deflation by prompting the Krona to strengthen too quickly.

Riksbank deputy governor Per Jansson recently stated:

‘It is not a question of the Riksbank having to start normalising monetary policy at exactly the same time as the ECB.’

‘But doing so one year or perhaps more ahead of the ECB would quite clearly be a tough challenge for a small, open economy like Sweden.’

With the ECB not expected to raise interest rates until as late as 2020, investors could find themselves waiting some time for a similar move from the Riksbank.

Pound (GBP) Exchange Rate Gains Trimmed by Latest Brexit Study

At the same time the Pound’s advance against the Krona slowed this morning following a new study looking into the impact of a ‘hard’ Brexit on the UK economy.

In a note from investment bank Jefferies, economists David Owen and Marchel Alexandrovich discussed a study by a ‘group of economic geographers’ which assesses the impact of Brexit on the various countries that make up the EU.

Unsurprisingly the study found that the UK is likely to be the most negatively impacted by Brexit, with suggestions that up to 12% of Britain’s GDP could be put at risk due to the split.

This is in comparison to the overall reading for the entire EU bloc, with forecasts that just 3% of the Union’s GDP would be at risk.

GBP/SEK Exchange Rate Forecast: UK Inflation to Have Slipped in December?

Looking ahead, the main driver for movement in the Pound Sterling to Swedish Krona (GBP/SEK) exchange rate next week is likely to be the release of the UK’s latest CPI figures on Tuesday.

Economists forecast the figures will show that inflation retreated from a five-year high of 3.1% to 3% in December.

While this will lessen pressure on the Bank of England (BoE) to raise rates again in 2018, investors are likely to be relieved to see the gap between inflation and wage growth narrow at the end of last amid hopes that consumer spending will rebound in the coming months.

The economic data most likely to impact the Swedish Krona next week will be the release of Sweden’s latest employment data on Thursday, with a possible uptick in the jobless rate likely to further dent the currency.

Adam Solomon

Adam joined the team at TorFX soon after graduating from University in 2005 with a degree in Journalism. Since then Adam has advanced to become both Head of Trading and Head of Treasury. His keen interest in the currency market and knowledge of what drives exchange rates makes him perfectly positioned to produce regular market updates focused on the movements of the major currencies.

Contact Adam Solomon