FxWirePro: No harm to SEK longs from Riksbank's move – stay calm with GBP, EUR shorts against SEK via debit spreads

The Riksbank seems to have considered the last week's ECB's timidity and strong domestic demand has allowed Sweden's central bank to keep rates unchanged today.

The Riksbank kept its repo rate unchanged at -0.35 percent and its programme of asset purchases at SEK 200 billion as expected on December 15th.

But with headline inflation in Sweden still close to zero and policy likely to be loosened further in the euro-zone, the Riksbank will be unable to rest easy.

With developments in the Swedish economy somewhat stronger than expected since the October policy meeting and the ECB's caution at its policy meeting earlier this month.

Economic growth has been remarkably strong in recent quarters, with the annual growth rate picking up to almost 4% in Q3. The Riksbank today revised up its GDP growth forecasts for 2015-18. It now sees annual growth at 3.7% this year (previously 3.3%) and 3.6% in 2016 (3.0%).

And underlying inflation has been on a gradual upward trend with CPIF (CPI excluding the direct effect of interest rate changes) rising from 0.6% in November 2014 to 1.0% in November 2015.

Apart from that in Euro area, we have UK CPI data have shown flat 0.1%, with the core at 1.2% from previous 1.1%.

No pressure on the MPC from there and GBP can lag the Euro.

It can lag the SEK too as the Riksbank left the rates on hold as expected and isn't too dovish.

We like short GBP and EUR vs. SEK and NOK long term (but oil prices need to find a floor first. For now, short GBP/SEK is attractive.

We expect EUR/SEK to base around current levels (9.20) and push back to the top of the recent range around 9.60. 

Long 1m 9.20-9.15 EUR/SEK put spread and short a 1w 9.70 EUR/SEK call.