Scandi central banks in focus this week

With the US government open for business once again, financial markets will receive crucial US data this week starting with non-farm payrolls later today. We expect 200k new jobs which should be USD positive. Due to ongoing political disagreements in the US however and their likely effect on growth and (ultimately) the Fed, we raise our 6 months EUR/USD forecast to 1.33. Although we still expect the Fed to taper in December there is clearly a risk that the decision will be pushed back in time into 2014 as US politicians will again have to negotiate the debt ceiling by latest Feb 7th. Obviously, the US monetary policy outlook influences the future policy stances of Scandinavian central banks but it is unlikely to be the immediate concern of the Riksbank and Norges Bank this week. In both countries growth has been weaker than our relatively dovish projections for 2013. Inflation also remains well below target in Sweden and has again moved lower in Norway after a brief period near its 2.5% target. Our investor survey released last week also showed Swedish investors moderating their expectations for the first Riksbank rate hike, which they believe is likely to happen in Sep or Oct 2014 (in line with its current rate path). Overall we forecast very minor changes to either the bank’s forecasts or its rate path at upcoming meetings.