Swedish inflation next focus point for Riksbank

Swedish inflation (Tuesday) and the release of TNS Sifo Prospera inflation expectations report (Wednesday) will likely steer price action for the SEK this week.

The CPIF is expected to have increased 0.95% y/y, in line with a 0.4% m/m increase, said Barclays in a research note. Market participants are also looking for a 0.3% monthly rebound in headline CPI.
 
Regarding inflation expectations, analysts see a risk of a small downtick in front-end inflation expectations owing to a fresh decline in energy prices, but Barclays expects medium-term expectations to remain stable.

Analysts see this week's inflation data as rather important for future Riksbank policy, particularly given the Bank's current discomfort with the level of SEK. An inflation miss will likely add pressure to the Riksbank, particularly in an environment of further policy stimulus by the ECB, which we still expect by year-end.

On the political front, Friday's vote of the Christian Democrats, the smallest of Sweden's four centre-right opposition parties, to leave the December Agreement could add an interesting political angle to Sweden in the coming weeks. Indeed, the reaction of opposition parties will crucial and risk snap elections being called. At present, we do not expect this to have meaningful implications for SEK rates and FX, but it could imply somewhat higher vols should uncertainty escalate meaningfully. 

A modest EURSEK depreciation is likely in the coming quarters and continue to think the Riksbank is close to the end of its easing cycle, foresees Barclays.