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FX Pilot

FX Pilot — Inflation print next obstacle for the SEK

• Markets expect rate hike from the Fed
• Higher inflation reading in the eurozone
• Reduced political risk behind yen weakness
In focus: Norges Bank to press ahead with a rate hike in September

Halfdan Grangård, Senior Economist | hagr11@handelsbanken.no

FX Pilot — Italian politics stirring things up for the global markets

• Major risk of Italian snap election impacts the euro 
• Swedish National Debt Office positions itself for stronger krona  
• Slowdown in the European business cycle 
• Interesting referendum in Switzerland 
In focus: Italy - a foreign country

Lars Henriksson, Strategist | lahe06@handelsbanken.se

FX Pilot — How will looser capital restrictions impact the CNY?

Capital restrictions are once again being loosened in China, with domestic stock and bond markets being opened up for foreigners. This is part of China's strategy to integrate its financial markets with the rest of the world, and ultimately to make the CNY a new global reserve currency. Opening up does not necessarily imply net capital inflows and give a stronger currency; we continue to expect a slightly weaker CNY versus the USD in the short run amid general USD strength.

Bjarke Roed-Frederiksen, Senior Economist | bjro03@handelsbanken.dk

FX Pilot — Communication problems at the Riksbank

As expected, the Swedish Riksbank last week decided to push back its forecast for a first hike of the policy rate. Finally, the rate-setting board also gave the impression of no longer worrying about a strengthening krona. In the press release following its latest monetary policy meeting, the Riksbank board changed the wording on the krona from "important that the krona does not appreciate too quickly" to "important that the krona exchange rate develops in a way compatible with inflation stabilising close to the target". Their stance also changed from being prepared to "implement further monetary policy easing" to being "prepared to adjust monetary policy". In combination with a very bullish SEK forecast, this makes us think that the Riksbank has had enough of SEK weakness and even wanted to prevent further depreciation. However, something appears to have gone very wrong.

Lars Henriksson, Strategist | lahe06@handelsbanken.se

FX Pilot — Inflation is not strong enough to keep the Riksbank on track

The weaker inflation numbers, especially CPIF excluding energy, lead us to believe that the Riksbank will decide to postpone its next rate hike from September to December at next week's Executive Board meeting. The krona is much weaker than the Riksbank's latest forecast, currently trading around 6.5 percent below forecast, leading us to believe in a minor revision to the rate path. With the risk of echoing a message from the past, we still believe the EURSEK is too high. Now that the UK and the EU have managed to agree on a transition period for the Brexit process, it is time to move on to negotiating the future relationship. Domestic UK politics do not make this second phase look any easier.

Lars Henriksson, Strategist | lahe06@handelsbanken.se

FX Pilot — The Riksbank has managed to take the SEK back to crisis levels

The EURSEK is now trading at the same level as it did at the end of the great financial crisis, and the same is basically true for the KIX index. The combination of the low reading for inflation in January and uncertainty in equity markets is guiding the SEK lower and lower. Still, if the next inflation number is in line with expectations, or higher, it is hard to see the Riksbank changing the current repo rate path at the upcoming April meeting, as long as the EURSEK remains elevated. This will be positive for the SEK and we therefore stick to our forecast of a lower EURSEK.

Lars Henriksson, Strategist | lahe06@handelsbanken.se