Sweden FX Today: Swedish Krona awaits the Riksbank rate decision

With the Swedish Krona (SEK) moving without a clear trend against the Euro (EUR) on Monday, all eyes are now on the Riksbank's monetary policy decision scheduled for Tuesday at 07:30 GMT.

Despite inflation still slightly above expectations, slowing growth and rising unemployment are fuelling speculation about a possible cut in the key rate, currently set at 2.00%.

The market remains divided. Deutsche Bank estimates the probability of an easing at just 30%, while SEB Research anticipates a 25 basis points cut, taking the rate to 1.75%, potentially followed by a further reduction by mid-2026.

The dilemma is clear. The Riksbank has to decide between persistent inflation and a fragile economy, while other major central banks are beginning to close their easing cycles.

Sweden's macroeconomic fundamentals under scrutiny

Sweden's macroeconomic environment presents a mixed picture. Core inflation, as indicated by the Consumer Price Index with a Fixed interest rate (CPIF) excluding energy - the inflation reading monitored by the Riksbank - fell back to 2.9% in August, closer to the central bank's target of 2%. However, the headline of the index surprised on the upside at 3.2%, exceeding market forecasts by 0.5 points.

According to ING, these data should encourage the Riksbank to keep its interest rate unchanged, while keeping open the possibility of a final cut later in the year.

On the growth front, the expected recovery remains timid. Second-quarter Gross Domestic Product (GDP) disappointed, coming 0.6 percentage points below the Riksbank's forecast. Unemployment, at 8.4%, remains high, prompting some members of the Monetary Policy Committee to consider immediate action.

As Morningstar's Johanna Englundh points out, "persistent weakness in the labor market could tip the balance in favor of a cut, despite temporarily higher inflation".

However, positive signals are emerging. Manufacturing Purchasing Managers Indexes (PMIs) have recently reached their highest level of the year, Consumer Confidence is recovering, and Retail Sales are showing signs of stabilization.

According to Nordea, the economy "has resumed its recovery from the trough at the start of the year", while the fiscal policy to be implemented in 2026, which is geared towards supporting households, could strengthen consumption.

Monetary policy at a crossroads

Tuesday's meeting could well mark a turning point in the Riksbank's monetary policy cycle. On the one hand, medium-term disinflationary factors are multiplying: the Value Added Tax (VAT) cut on food products scheduled for April 2026, weaker retail price rises and moderate wage settlements should push inflation back below 1% next year, according to SEB Research scenarios.

On the other hand, some members such as Governor Erik Thedéen, remain cautious, pointing to an unprecedented situation of division on the markets. "This is the first time since I took office that market expectations are so divided," he told Dagens Industri.

The forecast interest rate curve will likely be adjusted lower at the margin, without any strong commitment, to maintain flexibility of action in the event of economic deterioration or a more marked recovery. As Nordea writes, "the door remains ajar, but it is gradually closing".

Technical analysis of EUR/SEK: The rebound pauses

EUR/SEK 4-hour chart. Source: FXStreet.

The EUR/SEK pair has enjoyed a solid rebound since last week's low at 10.90, but is currently marking a pause and forming a visible flag on the 4-hour chart.

The breakout from this chartist figure could be decisive for the next short-term trend.

On the upside, EUR/SEK could resume its rebound towards the 11.12 area, formerly solid support, which could now act as resistance.

On the downside, EUR/SEK could correct towards 10.99, where the 100-period Simple Moving Average (SMA) is currently located on the 4-hour chart. Below this, the Forex pair could subsequently reach the recent low at 10.90.