Krona Hit by Profit Taking Following Inflation Print
- Written by: Gary Howes
Image © Adobe Stock
2025's star performer suffers a setback after Sweden's inflation rate cools enough to bring it back to within a whisker of Riksbank's 2.0% target.
"The SEK falls back this morning after below forecast inflation data for December," says a response note from Société Générale.
The Data Surprise
Flash CPIF inflation in December surprised to the downside for the second month in a row, falling to 2.1% y/y, versus consensus expectations at 2.3%.
The 4Q average for core CPIX (ex-energy and food) is 2.50%, 0.08pp below the central bank forecast. The rate is forecast to slow below 2% to 1.9% in 1Q.
What it Means
Sweden's central bank, Riksbank, doesn't need to raise interest rates anytime soon.
"Speculation of an early rate hike in Sweden comes off the boil," says Soc Gen.
"We forecast CPIF inflation to slow further in 2026 due to base effects and tax changes; we expect no change in the Riksbank policy rate this year," says a response from economists at Nomura.
Image courtesy of Nomura.
How the Krona Responded
The data "triggers profit taking in the krona," says Soc Gen.
The EUR/SEK exchange rate jumps 0.63% to 10.7701, GBP/SEK rallies 0.30% to 12.3980 and USD/SEK is up half a per cent at 9.2280.
Why the Krona Responded this Way
Currencies tend to find support when their central bank is entering a rate hiking cycle. This is because a higher base rate raises short-term interest rate yields.
Global investors chase higher or rising yields as they seek returns. Therefore, the setback to the 'bullish' case for Swedish yield relative to elsewhere weighs on SEK.
The Context
The Krona was the best-performing G10 currency in 2025, and analysts are confident this performance can extend into the early parts of 2026.
The inflation figures somewhat dent the view that SEK's star will continue to shine.
Above: SEK outperformed all contenders over the course of the past year.
The SEK Outlook
To be sure, these data question the bullish SEK thesis. However, the trend is still firmly in favour of further outperformance.
Looking at the key exchange rates, we see SEK holding near its recent highs (lows in GBP/SEK, EUR/SEK etc.).
So although the trend is still in favour of further Krona gains, we might be in for a phase of retracement and consolidation.