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How to Trade the Swedish Central Bank Meeting

Kristianstad, Sweden
Source: Måns Sjödahl
Kristianstad, Sweden

Sweden's Riksbank will meet and reach an interest rate decision Tuesday. Here's how to get ready.

Yes, there are happenings in Europe outside the euro zone. Here's one: Sweden's central bank is meeting on Tuesday, and an interest rate decision will ensue. Investors seem to be divided on whether there will be a 25 basis-point rate cut, but some are starting to think there could be even more.

Not so fast, says Marc Chandler, chief currency strategist at Brown Brothers Harriman. "We think there is scope for disappointment and suspect standing pat is likely than a 50 bp cut," he wrote in a note to clients. Chandler points out that while inflation is low and sentiment surveys are deteriorating, third quarter growth ran at a very respectable 4.6% and Sweden's trade surplus is holding up.

Others disagree, however. At Citigroup the betting is on a 50 basis point cut, "although there is a chance it will do just 25bp." At Barclays Capital, analysts think a 25 basis point move is most likely - and "as poor liquidity is also likely to weigh on the SEK next week, we think the risk reward favors being long USD/SEK," they wrote in a research note.

And then there is the euro zone. Chandler says the krona's direction will depend as much on events there as on anything else. After all, he says, Norway cut interest rates 50 basis points, surprising just about everyone, and the krone has risen against both the dollar and the euro since then.

Stay tuned.

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