SEK: Brighter prospects? – Rabobank

In terms of the rhetoric provided by the Riksbank in recent weeks, there would appear to be relatively few concerns in Sweden about the risks associated with persistent inflation. There were no expectations in the market that the ECB would follow up its June rate cut with another move at today’s policy meeting, following signs of persistent wage and price pressures in the robust services sector, notes Jane Foley, senior FX strategist at Rabobank.

EUR/SEK to move lower towards its long-term average levels

“At the Riksbank’s last policy meeting, there were hints about the possibility of three, rather than two, more rate cuts in the second half of this year. The Riksbank’s dovish sentiments have weighed on the value of the Swedish Krona (SEK) against the Euro (EUR) since late June, with the recent rally in EUR/SEK wiping out around half of the gains the SEK had made against the single currency this spring.”

“That said, while interest rate differentials have weighed on the SEK, the door is wide open for an ECB rate cut in September. Hopes for further easing by the ECB, combined with improving growth and fundamental prospects in Sweden, suggest scope for EUR/SEK to move lower and towards its long-term average levels in the coming months.”

“As a result of the SEK selling over that period, EUR/SEK is currently trading well above its 5-year average level of 10.76. As growth returns, we expect SEK to outperform EUR. While the Riksbank’s rate cuts are likely to hamper the SEK’s recovery in the near term, assuming the ECB cuts rates twice more this year, we maintain a 6-month forecast for EUR/SEK of 11.00, although we have raised our outlook to 1 month.”