SEK: Another cut to thwart currency strength

In today's updated quarterly forecasts, the Riksbank raised its headline inflation estimate for 2015 from 0.1% to 0.3% and for 2016 from 1.9% to 2.1%. The GDP growth forecast wasraised for this year to 3.2% from 2.7% and for next year to 3.4% from 3.3%.

The central bank may also have taken a more sombre view of events in Greece and the implications for the EUR. It warned in the accompanying statement that consequences of the situation in Greece for the euro area as a whole and for Sweden are difficult to judge. 

Like Switzerland, future performance of the Krona against the currencies of Sweden's major trading partners (the euro area accounts for 50% of all Swedish exports) will be crucial to the policy path and the central bank expanding its toolbox which could include FX intervention.

USD/SEK vaulted 8.45 and EUR/SEK spiked over the 200dma of 9.3211 after the rate announcement. For USD/SEK, a break of 8.5973 is required before envisaging a return to 8.80 and the April high of 8.8847.

For EUR/SEK, an extension of the rebound over 9.3210 is not evident without EUR/USD retreating below 1.10 on Greece and Fed rate hike expectations, says Societe Generale.