Cautious Riksbank may add pressure to krona – ING

Economists at ING believe that EUR/SEK is not overvalued in the short-term and a cautious Riksbank announcement may generate more SEK weakness this week.

Key Quotes:

“The Riksbank has been resistant to include a rate hike in its published rate projection, which as of September went out as far as 3Q 2024. That might change this week, with the inclusion of a notional rate rise for the final quarter of 2024, though even that isn’t totally guaranteed. ”

“The latest rise in Covid-19 cases across Europe adds another potential reason for caution this week. That caution probably means it is also too early to hear about the Bank’s balance sheet plans beyond next year. ”

“We expect the Riksbank to push back against market speculation that the tightening cycle will start as early as 2022. We think the Riksbank will disappoint hawkish expectations this week, and we expect some dovish re-pricing of rate expectations. ”

“In FX, this should translate into more SEK weakness in our view, although losses should be more marked against the USD than against the EUR. Still, EUR/SEK may approach the 10.20 level this week.”