11 Feb 2015
A rate cut should be must by the Riksbank – TDS
FXStreet (Barcelona) - The Research Team at TD Securities, note that to avoid a probable higher SEK reaction, the Riksbank will have to ease either by fine tuning rate or the repo rate, and further shares the trade setup into the central bank decision.
Key Quotes
“We look for a –25bps rate cut from the Riksbank on Thursday, as it pushes its policy rate into negative territory for the first time ever. This puts us on the dovish end of expectations.”
“Although the Riksbank has several available options, we think that anything that underwhelms the markets, like just fiddling with its repo rate forecasts, will lead to a ‘protest’ reaction of higher rates and higher SEK.”
“We need to see some sort of rate cut—whether it be the fine-tuning rate or the repo rate—or at the very least a very strong hint of a cut to come, to get the market reaction that the Riksbank will want to see.”
“So our preferred trade for Thursday given we also expect a hawkish BoE later in the day is long GBPSEK from 12.70, targeting a 3% move to 13.10 if both our calls are correct.”
Key Quotes
“We look for a –25bps rate cut from the Riksbank on Thursday, as it pushes its policy rate into negative territory for the first time ever. This puts us on the dovish end of expectations.”
“Although the Riksbank has several available options, we think that anything that underwhelms the markets, like just fiddling with its repo rate forecasts, will lead to a ‘protest’ reaction of higher rates and higher SEK.”
“We need to see some sort of rate cut—whether it be the fine-tuning rate or the repo rate—or at the very least a very strong hint of a cut to come, to get the market reaction that the Riksbank will want to see.”
“So our preferred trade for Thursday given we also expect a hawkish BoE later in the day is long GBPSEK from 12.70, targeting a 3% move to 13.10 if both our calls are correct.”