BONDS: /SWAPS: Citi Recommend Long Schatz/€STR

EURSEK saw a 0.2% knee-jerk higher following the Riksbank decision to a high of 11.0062, seemingly on the policy statement noting that "the forecast for the policy rate entails some probability of another cut this year". Although fading initially, the cross has since moved back towards the 11 handle at typing, now 0.3% higher on the session. 

• The May 27 high at 10.9937 in EURSEK was pierced, but a clear break of this level is required to signal scope for a push towards 11.0850 (April 28 high).
• See below for an illustration of the new rate forecast. Notably, the rate projection does not return to the 2.25% level by the end of the projection horizon. This level is the mid-point of the Riksbank's 1.50-3.00% neutral range, and had previously acted as somewhat of an anchor for the rate path in the medium term.
• This adds to the dovish impetus stemming from today's decision.

• ERH6 98.5625/98.1875ps 1x2 sold at 10.75 down to 10.5 in 20k.

Yesterday:

• ERH6 98.5625/98.1875ps 1x2, sold at 11.25 down to 10.50 in 21.6k.

Highlights from the policy statement:

• "The economic recovery that began last year has lost momentum, and inflation is expected to be somewhat lower than in the previous forecast".
• "The forecast for the policy rate entails some probability of another cut this year. The lower interest rate will stabilise inflation at the target and contribute to strengthening economic activity".
• "However, the outlook for inflation and economic activity is uncertain. There are substantial risks linked to trade policy and the geopolitical tensions, not least as a result of the escalating conflict in the Middle East, which could affect economic developments abroad. These risks and the questions about the strength of domestic demand mean that it is uncertain how quickly the Swedish economy will recover. New information, and how it is expected to affect the outlook for inflation and economic activity, will determine how monetary policy is designed going forward".
• The June rate path appears broadly in line with the analyst previews we had seen, though a little more dovish than MNI had expected

June Rate Path (Source: Riksbank)