A modest EUR/SEK depreciation likely

Sweden's manufacturing PMI and IP are the market's focus in the week ahead. Market participants expect an increase in manufacturing PMI to 54.0 from 53.3 but a somewhat softer annual increase in IP of 3.3% y/y nsa. 

In general, forward-looking indicators continue to suggest solid growth credentials, which, in combination with the recent stabilization in inflation and inflation expectations, continues to argue against the need for additional monetary policy stimulus by the Riksbank. Indeed, the Bank has revised its growth forecasts higher for 2015.

Nonetheless, given the Riksbank's reactivity to central banks abroad, particularly the ECB, an additional 10bp repo rate cut is expected in December, but remain of the view that the Riksbank is close to the end of its easing cycle.

"The EUR/SEK forecasts remain intact, and a modest EUR/SEK depreciation is likely further ahead as the Riksbank becomes more comfortable in allowing currency appreciation", says Barclays. 

This may, however, last longer than previously expected, given a revision in the projected path of KIX appreciation in the coming quarters.