Sweden inflation to remain stable

The SEK further unwound some of its recent weakness as the Riksbank kept policy unchanged at -0.35% last week. Inflation data and the release of TNS Sifo Prospera survey on inflation expectations will be the market's main focus for the week ahead. 

"CPIF inflation is expected to grow 0.8% y/y (0.84% excluding rounding), slightly below the consensus and Riksbank expectations of a 0.9% y/y increase. Excluding the volatile energy component of CPIF, we continue to expect an annual inflation rate of about 1.5%", says Barclays. 

Moreover, inflation expectations are expected to remain stable but still hold the recent uptrend. Further policy stimulus is questionable if necessary, given the economy's positive fundamentals and easy monetary conditions. 

EUR/SEK is seen downside via options but the risk is to be acknowledged that the Riksbank may have to respond to international developments including additional easing by the ECB. 

"As such, one additional cut is not excluded by year-end, which nonetheless does little to alter the view of modest EUR/SEK depreciation. Finally, on the data front, market participants expect Q2 GDP to be confirmed at 1.0% q/q and the unemployment rate to increase slightly, to 7.4%", added Barclays.