The US Dollar/Swedish Krona (USD/SEK) exchange rate held near a fresh three-week high of 10.3943 on Tuesday, buoyed by Swedish Gross Domestic Product (GDP) data and in anticipation of a possible Federal Reserve interest rate adjustment ahead of the upcoming US Consumer Price Index (CPI) inflation report.

According to market expectations, annual U.S. consumer inflation could fall to 2.6% in August, down from 2.9% in July. Core CPI inflation is expected to remain at 3.2% in August, which is the lowest level since April 2021.

Last week's data showed that U.S. job growth was below market expectations, but wage growth was steady and the unemployment rate fell to 4.2%, suggesting that the labor market has not weakened significantly. This reduces to some extent the Fed's policy meeting next week, the demand for a significant interest rate cut.

The market now expects the Fed to cut rates by 50 basis points in September with a probability of about 27% and 25 basis points with a probability of about 73%.

Meanwhile, Swedish data showed that the country's economy contracted by 0.8% in July from a year earlier, after economic growth was revised to 0.8% in June. On an annualized basis, Sweden's GDP contracted 0.9% in July.

Mattias Kain Wyatt, economist at Statistics Sweden, said, “Sweden's GDP contracted in July, mainly due to lower production figures in the services and construction sectors. However, strong manufacturing and public sector output partly mitigated the downward economic impact.”

As of 09:33 GMT on Tuesday, the USD/SEK exchange rate was trading marginally lower by 0.05% at 10.3674.