USD/SEK scales three-week peak as Swedish economy shrinks

The USD/SEK currency pair held near a fresh three-week high of 10.3943 on Tuesday after Swedish GDP data and ahead of the key US CPI inflation report that could provide further clues over the size of the potential interest rate cut by the Federal Reserve this month.

Annual headline consumer inflation in the United States probably eased to 2.6% in August, according to market consensus, from 2.9% in July.

Annual core CPI inflation probably steadied at 3.2% in August, which has been the lowest rate since April 2021.

Last week’s data showed US jobs growth below market consensus, but a stable wage growth and a drop in the unemployment rate to 4.2% implied the labor market was not weakening substantially. This, to an extent, reduced the need for a super-sized rate cut at the Fed’s policy meeting next week.

Markets are now pricing in about a 27% chance of a 50 basis point Fed rate cut in September and a 73% chance of a 25 basis point rate cut.

Meanwhile, data out of Sweden showed the local economy had contracted at a monthly rate of 0.8% in July, following a revised down 0.8% growth in June.

In annual terms, the nation’s GDP contracted 0.9% in July.

“Sweden’s gross domestic product contracted in July with lower production figures among service-producing industries and in construction. The downturn was mitigated by stronger figures for manufacturing and general government output,” Mattias Kain Wyatt, an economist at Statistics Sweden, commented.

As of 9:33 GMT on Tuesday the USD/SEK currency pair was inching down 0.05% to trade at 10.3674.