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1 Apr 2015
EUR/SEK poised for further downside – JP Morgan
FXStreet (Edinburgh) - Analysts at JP Morgan agreed that there is actually little that the Riksbank can do to debilitate the krona, with EUR/SEK grinding lower albeit at a snail pace.
Key Quotes
“There can be little doubt after the last intra-meeting rate cut and QE extension that the Riksbank has lost patience with the inflation process and is prioritizing the exchange rate as a fast-track route to delivering on its 2% inflation objective”.
“Such a strategy might make more sense were it not for the pronounced acceleration now underway in the economy and the turn in the domestic inflation cycle”.
“As it is, with growth of over 3% likely both this year and next, the Riksbank runs the risk of over-easing too late in the business cycle in the same way that it made the mistake of over-tightening too early in the cycle in 2010-2011”.
“For this reason we believe the Riksbank will struggle to convince investors that it is capable of matching ECB easing for as long as it takes the ECB to reflate the Euro area economy”.
“The most that we believe the Riksbank can achieve is to slow and limit the fundamental downtrend in EUR/SEK, not to reverse it”.
Key Quotes
“There can be little doubt after the last intra-meeting rate cut and QE extension that the Riksbank has lost patience with the inflation process and is prioritizing the exchange rate as a fast-track route to delivering on its 2% inflation objective”.
“Such a strategy might make more sense were it not for the pronounced acceleration now underway in the economy and the turn in the domestic inflation cycle”.
“As it is, with growth of over 3% likely both this year and next, the Riksbank runs the risk of over-easing too late in the business cycle in the same way that it made the mistake of over-tightening too early in the cycle in 2010-2011”.
“For this reason we believe the Riksbank will struggle to convince investors that it is capable of matching ECB easing for as long as it takes the ECB to reflate the Euro area economy”.
“The most that we believe the Riksbank can achieve is to slow and limit the fundamental downtrend in EUR/SEK, not to reverse it”.