Swedish Krona: Riksbank tightening supports SEK against US Dollar - BBH

Brown Brothers Harriman's Elias Haddad observes the USD/SEK exchange rate strengthening due to broader US Dollar strength. September's Consumer Price Index (CPI) data for Sweden was mixed, with adjusted inflation nearing 2% prompting a potential Riksbank rate increase. The Riksbank's guidance, combined with market expectations of 75-100 basis points of tightening over the next year, suggests limited policy divergence with the Federal Reserve, negatively affecting USD/SEK.

Sweden's September CPIF matched expectations at 1.5% year-over-year, while CPIF excluding energy was colder at 0.5% compared to the consensus and Riksbank projection of 0.7%. Post-adjustment, inflation is closer to 2%, justifying a policy rate hike. The bank expects over 75 basis points of tightening to reach 2.50% within a year, with the swaps curve pricing in approximately 100 basis points of hikes to 2.75%. This limited policy divergence with the Fed hinders USD/SEK's strength.