The Riksbank completed its shift towards the hawkish side of the spectrum by delivering a surprise 25bp rate hike today. EUR/SEK fell from the 10.40 area to slightly below 10.30 after the Riksbank’s statement was released. A series of gradual hikes are set to come, providing support to the krona, economists at ING report.

Riksbank will start QT from July

“Sweden’s central bank surprised with a 25bp rate hike today after a U-turn in the inflation assessment. Rate projections signal two to three more hikes this year and a terminal rate slightly below 2% by 2025; balance sheet reduction in 2H22 was also announced. All of this means more support to the krona in the medium-term”

“The recent instability in global risk sentiment and lingering geopolitical concerns in Europe are keeping a lid on the high-beta krona. This may not change in the near term, and we still struggle to see EUR/SEK trade sustainably below 10.20 in the coming weeks.”

“In the longer run, the Riksbank’s policy shift is set to offer sustained support to the krona, and periods of stabilised market sentiment (especially in Europe) could see the widening EUR/SEK rate differential push the pair materially lower. We now expect a move below 10.00 in EUR/SEK in the second half of the year.”