BNY’s Bob Savage highlights that the European Central Bank (ECB) is now clearly leaning toward a June rate move, contrasting with the Bank of England's (BoE) preference to wait for fuller confirmation. He sees this directional guidance as a break from the prior “policy in a good place” stance. Divergent paths for Norges Bank and Riksbank versus ECB expectations are likely to drive NOK–SEK and Euro-area rate pricing into year-end.

June move bias and Nordic spillovers

"Our take: The ECB and BOE decisions for April have largely set the tone for the rest of the continent. The ECB is clearly leaning toward a June move at this point, with President Christine Lagarde stating at the post-decision press conference that while the economy was not seen as facing second-round effects, she knew “where the ECB is headed on interest rates.”"

"The fact that there is even a direction in place moves squarely against the notion of the “policy in a good place” designation before the conflict. This also stands in contrast to BOE Governor Andrew Bailey’s notion that unchanged rates were “a reasonable place” for the BOE."

"Transposing such views onto Norges Bank and the Riksbank, which decide in the coming days, we believe a similar approach is needed as markets continue to expect multiple hikes toward year end at both. As we have stressed, domestic conditions already justified aggressive moves from Norges."

"For the Riksbank, considering their low policy starting point, matching the ECB would have been understandable, but the surprisingly soft inflation prints for March (sequential decline in both CPI and CPI-F) and lackluster growth expectations forced out almost 50bp in tightening through mid-April, though expectations are ticking up again due to ceasefire uncertainty. We don’t see the Riksbank moving this year either, and NOK–SEK divergence will likely become more apparent in the coming cycles."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)