30 Mar 2015
ECB QE puts upward pressure on both NOK and SEK vs EUR – BAML
FXStreet (Barcelona) - Myria Kyriacou, FX Strategist at BofA-Merrill Lynch, views that the scale of ECB QE puts upward pressure on both NOK and SEK vs EUR in the medium term, in turn increasing the pressure to keep pace with ECB, also the rapid appreciation increases possibility of additional easing.
Key Quotes
“We have recently argued that exchange rates may be becoming the most important transmission channel for monetary easing, and in the Scandies we see two central banks who have not shied away from emphasizing how important the currency is for achieving their objectives.”
“Over the past two weeks, both have continued the trend of central bank surprises, with the Riksbank delivering an unscheduled cut and an increase in QE, and the Norges Bank conversely remaining on hold against all expectations, although maintaining a strong easing bias.”
“In the medium term, we expect that ECB QE will result in both NOK and SEK strength relative to EUR. Neither bank is done with easing, but we believe they will struggle to match the pace of the ECB.”
“The recent shift to a more patient stance from the Norges Bank suggests more upside potential for NOK, while the Riksbank's activist policy is butting heads with stronger data, and a market unconvinced that EUR/SEK will be able to defy gravity for long in the face of ECB QE.”
“In both cases rapid strengthening is likely to be met by central bank action, suggesting increasing volatility, particularly in SEK, as EUR/SEK approaches the 9.00-9.10 level as the Riksbank has proven ready to deliver on intermeeting action.”
Key Quotes
“We have recently argued that exchange rates may be becoming the most important transmission channel for monetary easing, and in the Scandies we see two central banks who have not shied away from emphasizing how important the currency is for achieving their objectives.”
“Over the past two weeks, both have continued the trend of central bank surprises, with the Riksbank delivering an unscheduled cut and an increase in QE, and the Norges Bank conversely remaining on hold against all expectations, although maintaining a strong easing bias.”
“In the medium term, we expect that ECB QE will result in both NOK and SEK strength relative to EUR. Neither bank is done with easing, but we believe they will struggle to match the pace of the ECB.”
“The recent shift to a more patient stance from the Norges Bank suggests more upside potential for NOK, while the Riksbank's activist policy is butting heads with stronger data, and a market unconvinced that EUR/SEK will be able to defy gravity for long in the face of ECB QE.”
“In both cases rapid strengthening is likely to be met by central bank action, suggesting increasing volatility, particularly in SEK, as EUR/SEK approaches the 9.00-9.10 level as the Riksbank has proven ready to deliver on intermeeting action.”