EUR/SEK: Relative monetary policy will remain a negative for the Swedish Krona in 2023 – Danske Bank

Analysts at Danske Bank see short-term risks in EUR/SEK titled to the upside. On a long term perspective, they expect a recovery and sustainable support to risk assets and the Swedish Krona and forecast EUR/SEK at 11.00 in 12 months.

Risk for correction, but we stick with bearish view on SEK

“We expect the Riksbank to hike by 50bp at the February meeting, taking the repo rate to 3%. That said, there is a clear risk for an additional 25bp in April. Overall, we expect that relative monetary policy will remain a negative for the SEK in 2023 as well.”

“Current bout of SEK weakness seems disconnected from both broader risk sentiment and relative rates and thus we view the EUR/SEK rally as overdone in the short-term. However, we still expect EUR/SEK to move higher over the coming months to 11.40 on the back of a global economic downturn, relative monetary policy and the Riksbank’s disregard for SEK weakness.”

“Risks are perhaps tilted to the upside as current momentum may favour EUR/SEK to remain elevated. In the medium-term, a Fed pivot, a global ‘soft landing’ and/or a change in Riksbank policy w.r.t the SEK could leave our forecast too elevated in 3-6M. In an even more protracted recession, on the other hand, our 12M point might be too low.”