The Ukraine crisis – a delicate situation
The Ukraine situation continues to weigh down financial markets. A war remains highly possible, but Russian Foreign Minister Sergei Lavrov’s appeal to President Vladimir Putin – to keep negotiating with the West – eased worries about an immediate armed conflict. Russia’s defence minister also announced that some of the military exercises along the border with Ukraine would soon end, which helped reduce tensions. But the situation remains delicate. For more about the Ukraine crisis, see below.
The United States
The minutes of the latest Federal Reserve policy meeting will be published tonight
On February 16 (tonight, Swedish time), the minutes of the US central bank’s policy meeting in late January will be released. They are likely to confirm that the Fed will start hiking its key interest rate in March. We are sticking to our forecast of five rate hikes during 2022.
The Nordic countries
Inflation figures for January are coming
On Thursday, February 17, inflation expectations in both Norway and Sweden will be published and may have a decisive influence on monetary policies. On February 18, Swedish inflation figures for January will be released This will be of great interest, since the Riksbank has emphasised its 2 per cent inflation target. We expect CPIF inflation (the consumer price index excluding interest rate changes) to drop back from 4.1% year-on-year in December to 3.4%.
The Swedish krona has weakened
A dovish central bank, together with weak risk appetite due to worries about a possible war, is not a good combination for the krona. The EUR/SEK exchange rate climbed this week above 10.60, its highest level since September 2020, and remains around 10.55. We believe that the krona is undervalued at current levels, but we see little opportunity for a near-term change as long as geopolitical tensions persist. The Riksbank will probably also have to signal that it is about to hike its repo rate before we see a clear SEK appreciation.
Extra Market Commentary
The financial markets are reacting negatively to the risk of an escalating conflict between Russia and Ukraine. We have asked three of SEB's experts about their views on the conflict and what economic consequences we can expect if a Russian invasion of Ukraine becomes a reality.