EUR/SEK exchange rate to remain supported by dovish Riksbank
The Swedish Krona has been one of the notable underperformers this year as fundamentals have taken a dramatic turn for the worst. It was all going so well for the Swedish economy, as the small nation was posting world-beating growth, was hitting inflation targets and the Riksbank was widely speculated on as being about to embark on a tightening cycle. In particular, it was the fact that the out-performance of the economy that looked so deeply at odds with the negative interest rates and massive amounts of QE being used by the central bank. These positives have since been eroded, as growth has slowed, worries have arisen over the housing market and the Riksbank have looked justified in their cautious approach.
Danske Bank see EUR to SEK headed lower
The sharp uptrend in EUR/SEK is quite clearly based around a relatively flat Euro and an extremely week Krona. Forex strategists at Danske Bank believe that a strong rebound in the SEK is unlikely as both growth and inflation are fading together and will more than likely keep the hands of the Riksbank firmly tied,
“First, the inflation outlook, which is on a downward slope and for CPIF ex energy - the core measure - well below the Riksbank’s estimate from April onwards. Second, growth momentum, which is deteriorating markedly in 2018 on the back of house price deflation and the slowdown in the housing investments. Both these arguments suggest that the Riksbank will not raise rates this year and not as quickly as the market is pricing in and the Riksbank indicates for coming years. We stick to our forecast profile, where we see EUR/SEK at 10.00 in 3M”
In addition to home grown issues, there is no question that the protectionist rhetoric out of the US has spoked SEK bulls, as the Swedish economy is particularly exposed to global conditions for trade. It looks unlikely it will find much support until fears surrounding the “trade wars” have eased sufficiently. A technical correction in the near term cannot be ruled out, but with such relentless upward momentum swing traders will have been burnt a number of times over the last few weeks trying to catch EUR/SEK at a peak.