Global Rates: Scandi Central Banks and noisy UK politics
The desk highlights that recent discussions surrounding the Riksbank and Norges Bank meetings are pivotal for Scandinavian rate markets, especially in light of unexpected fluctuations prompted by UK political dynamics. Per the full note from J.P. Morgan, the emphasis on these central bank meetings indicates a potential shift in monetary policy that traders should closely monitor. Furthermore, as regional concerns arise, investors are recalibrating their positions based on these pivotal insights, suggesting an evolving landscape in both Swedish and Norwegian markets during this period of heightened political noise. The backdrop raises critical questions about the trajectory of Scandinavian currencies as interest rates may become more diversified amid the broader European political environment.
What the desk is arguing
The desk maintains that the implications of the Riksbank and Norges Bank meetings will notably influence Scandinavian market dynamics, particularly given the backdrop of UK political uncertainty. Per the full note , such high stakes related to interest rates are underscored by the recent volatility observed in these currencies.
The discussions during the meetings this month will provide crucial insights into the future direction of monetary policy in Scandinavia. With potential shifts in policy, it will be essential for traders to pay close attention to statements and decisions made by both central banks to gauge how these developments might impact currency values.
Where it sits in our coverage
With a consensus target of 1.075 for the SEK/NOK pair and a range between 1.04 and 1.12, the desk's view reflects anticipated movements across Scandinavian currencies effectively. Specific firms have outlined their targets: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This analysis aligns closely with jpmorgan's stance, reflecting a consensus belief that the SEK/NOK pair will trudge closer to the higher end of this expected range, given the ongoing political developments and central bank deliberations.
How other firms see it
Several firms are synchronized in their expectations of a cautious approach from the central banks, indicating a broader agreement among traders about the current climate. On the contrary, bofa presents a more conservative estimate, suggesting lower targets might prevail based on prevailing political risks.
Observations of EUR/USD movements will provide critical context for understanding the spillover effects anticipated from the Riksbank and Norges Bank meetings, especially as shifts in investor sentiment occur in response to political tensions affecting the UK and broader Europe.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Scandinavian rate markets are highly influenced by recent central bank meetings.
- 02UK political dynamics add noise and may impact investor strategies in Scandinavia.
- 03Consensus builds towards higher expected targets for the SEK/NOK currency pair.
- 04Moving forward, close monitoring of both central banks' statements is crucial.
Market implications
Traders should watch closely for cues from the Riksbank and Norges Bank meetings, particularly indications that may push the SEK/NOK past the 1.10 level. The upcoming political developments in the UK could also act as a volatile catalyst, influencing broader market sentiment and positioning in the currency pair.
Risks to this view
Any unexpected announcements from the Riksbank or Norges Bank could invalidate the current bullish sentiment, especially if they indicate a more dovish approach. Political stability in the UK could also counterbalance the expected volatility, reversing current trends in the Scandinavian markets.
Hi, and welcome to At Any Rate, James Morgan's global research podcast series, where we take a look at some of the drivers behind the biggest trends and themes across fixed income, currencies and commodity markets. I'm Francis Diamond from European Rate Strategy at James Morgan, and today I'm joined by my colleague, Yandere Gupta, to discuss the Riksbank and Norwich Bank's meetings over the last two weeks, as well as the recent media noise around a possible Labour Party leadership contest in the UK. So, both the Riksbank and Norwich Bank have delivered what we could call a hawkish cut, taking rates to 1.75% and 4% respectively, and it looks like the bar for further rate cuts has risen.
Scandinavian yields have increased across the curve, with decent underperformance of NIBOR yields relative to both STIBOR and URIBOR over the past week or two. So, let's start with the Riksbank, Yandere. The 25 basis point cut was in line with our expectations, and it looks like the projected rate path now suggests the Riksbank will keep policy rates pretty much unchanged at 1.75%.
So, what are markets pricing for the Riksbank from here? Hi, Francis. Yeah, the Riksbank cut was in line without expectations, but that was not a consensus call.
The STIBOR curve was pricing around, you know, 10 basis point of cut going into the meeting. Interestingly, there was one descent to the cut, where Deputy Governor Siem preferred to hold rates at this meeting. The rate path now shows zero probability of further cuts and a small probability of a hike in 4Q26.
We'd like to remind our listeners that the Riksbank has previously warned or instructed not to place too much weight on longer term forecast. The board owns the forecast for the next three quarters, whereas further out, the staff does the forecast beyond that. So, on the face of it, the rate cut decision appears surprising as core inflation, which we assume as CPI of inflation X energy, is now close to 3%.
However, on a forward-looking basis, this is expected to decline swiftly as base effects from earlier weight changes fade next year. Additionally, the recent government decision to temporarily reduce VAT on food from 12% to 6% would push core inflation below 1% by mid next year. So, and of course, this is all a one-off effect, but we continue to see that risks to Swedish inflation and growth remain stilted to the downside.
Nevertheless, the bar for the Riksbank to deliver further cuts is very high, and in my mind, it will require proof of weak activity, labor market, and inflation data to push them towards another cut, let's say in the next few months. The Stiber curve is pricing broadly unchanged rates over the next few months, which is in line with our expectations, and then it steeps, and then it slopes upward, which is typical of a on-hold cycle. Now, we believe that this environment is conducive for carry trades, especially at the front end of the curve, where we have a strong conviction on the central bank staying on hold for the next few months.
Okay, so I guess that's the monetary backdrop in Sweden, but what about the Swedish budget news this week? How has that impacted Swedish rates and rate markets? Yeah, the 2026 budget includes the, you know, the so-called unfunded reforms of almost a stocky 80 billion, or worth of around 1.2% of GDP measured in, real GDP measured in 2024 terms.
Now, this is around 18 billion higher compared to that in 2025. We had penciled in numbers around these levels to be precise, around 75 or 76 billion. However, official institutions such as the NIER public institute had assumed only a further increase of 34 billion in their August report.
So that's why this number was a surprise for markets. Now, additionally, I highlight that this number does not include military support to Ukraine and additional defense spending, which is temporarily financed through loans. Now, if we include all of these unfunded reforms, this mounts to about 120 billion of additional easing this year.
Now, as expected, this announcement pushed Swedish rates, the intermediate rates higher, the two stands curve steeper, and you know, the 10 stop spread significantly narrower. The two stands bond curve is now flashing too steep versus say, Germany. Similarly, the 10-year swap spreads narrowed sharply and got close to zero basis point before rebounding wider later this week.
In our view, estimating a beta of issuance to swap spreads is rather difficult. Now, we draw on our experience while running this exercise earlier this year for Germany. So even though our models are suggesting that 10-year swap spreads are too cheap, we kind of refrain from feeding this.
Let's turn to the Nordic Bank in the September meeting. So their policy rate forecast was revised higher, but the front end of the curve continues to price in further easing. So do you agree what's priced in by the market for Nordic Bank?
The Nordic Bank decision, you know, was also a bit surprising to us. We were expecting them to stay on hold given the strength of activity, labor market, and inflation data recently. However, the market was kind of on the other side.
It was pricing about 15, 16 basis point of easing going into the meeting. Now, on the economic side, the Nordic Bank economic analysis matches with our own conclusions, which in our view did not support a rate cut. However, the board decided to cut rates with an idea to continue supporting the economy on a forward-looking basis.
They also pushed the rate forecast significantly higher and currently indicate only one 25 basis point cut per year over the forecast horizon. Now, we think that this easing bias that is maintained in their forecast is just a placeholder. But for all practical purposes, this was it was the end of the easing cycle.
It will require again, material weakening in domestic and or global macro data for them to resume easing, which is not in our forecast currently. On market pricing, the Nibor curve is currently pricing some easing with terminal rates around let's say 365, 370 versus our expectation of around 4%. Now, I think this is too low, given what our views are for the Norwegian economy going forward.
Of course, with policy rates still close to 4%, the bar to hike again is very high. And there's some easing bias price in the curve is understandable. But I think the terminal rate around 365, 370 appears a tad too low in our view.
Having said that, I'm not so keen on fading this on an outright basis, but find that selling, you know, 4Q26 Nibor-Fraz coupled with long thin equivalent stocky-Fraz is an attractive on a cross market basis. Francis, if I let's switch to the UK, where politics has been in focus this week with some noise around a possible Labour Party leadership contest. Could this affect the UK rates markets?
Well, I think the simple answer to this is probably no, at least not for now. I mean, as you mentioned, there's definitely been noise in the media this week around potentially what a Labour Party leadership contest could look like or timing around that. But I think it's worth pointing out that whilst UK rate markets have been used to how Conservative Party leadership contests have been held in the past, given we've seen quite a few of those over the past few years, the process for the Labour Party leadership, if there were to be a contest, is actually quite different.
The key points to note are that Labour MPs can't actually formally hold a vote of confidence in their leader, which in this case is obviously Prime Minister Starmer. And MPs then would need to initiate some form of leadership challenge with 20% of support of Labour MPs to trigger some kind of balloting sort of process. And it's worth noting the incumbent leader would be automatically included on that ballot and wouldn't need to seek any nominations from MPs.
So there's been quite a lot of media commentary, some of these commentaries focused on the current Greater Manchester Mayor, Andy Byrne as a potential candidate. But I think there's a lot of getting ahead of themselves in terms of people drawing conclusions for markets around that particular candidate, in particular, given he's not a current Labour MP and is still scheduled to be in his current role to at least 2027. So I think for now, it's quite early to draw any implications.
I think there's a lot of media noise here. Certainly, I think guild markets shouldn't be reacting at the moment to potentially what this might mean on a forward-looking basis. But I think it can remain in the background over the coming quarters.
But I think for the UK, it's still the theme of, let's say, fiscal term premier to run into the budget, the uncertainty around size of headroom, what measures the government may need to put in place in terms of fiscal policy to correct the headroom. I think these are all going to be the main drivers for the UK yield over the next couple of months. And I think that probably continues to put some steepening pressure on the UK curve.
So thank you, Deandra. That's all from us. And thank you for listening.
Stay tuned for more updates on the fixed income space here on At Any Rates, JPMorgan's global research podcast series. This communication is provided for information purposes only. Please read JPMorgan research reports related to its content.
More information included in the board of disclosures. Copyright 2025. JPMorgan Chase & Co.
All Rights Reserved. This episode was recorded on 26th of September 2025.
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