Core inflation printed effectively flat on the month in July for the second straight month, which should raise confidence that a return to the 2% target in the medium-term is on the horizon.
Swap markets are almost fully pricing in another rate cut from the Bank of Canada by the end of the year, but it looks increasingly likely that this will be the last. Focus this week shifts to the second quarter GDP figures, out on Friday. Economists are expecting a mild contraction, albeit the downturn looks set to avoid the Bank of Canada’s initial expectations.
As expected, the Riksbank held rates steady last week. We would not call it a non-event, however, with the statement accompanying the decision swinging in a rather dovish direction. Notably, policymakers indicated that the recent uptick in inflation is primarily driven by temporary factors.
At the same time, attention was drawn to economic conditions, which remain considerably weakened. "Some probability" was assigned to a further rate cut this year, which aligns with market expectations. One additional rate cut is now expected to come in either November or December, with a September move not entirely ruled out. Whether this materialises will depend on incoming data, however.
Volatility in the EUR/SEK pair remained subdued following the meeting. Investors shifted their focus to Friday’s Jackson Hole speech by Jerome Powell, which triggered a notable weakening of the US dollar. The Swedish krona, on the other side of the scale, emerged as one of the biggest beneficiaries of the Fed’s chair dovish tone.
