SEK Under Pressure as Oil Prices Rise and Riksbank Hike Looms

The Swedish Krona has been under pressure from several factors, including high oil prices and the European Central Bank's (ECB) stance. The Riksbank, Sweden's central bank, is expected to hike interest rates this year, with November being a likely target. Despite a weak July Gross Domestic Product (GDP) indicator of 2.5% y/y and -0.8% m/m, underlying domestic activity appears stronger, driven by solid services and consumption data.

The Riksbank's June forecast was closer to the actual GDP figure, which may have disappointed some doves on the board. However, with a weak SEK, high oil prices, and a widening rate spread versus the ECB, it is unlikely to impact the September rate decision. The recent market moves show EUR/SEK drifting higher on the latest shocks.

The Danske Research Team expects clear guidance for a hike this year, despite the weak GDP print. They attribute this expectation to the combination of rising oil prices and a hawkish ECB stance, which has been negative for the SEK.