Economists at Danske Bank continue to expect the SEK to struggle over the medium-term horizon on the back of a relatively worse outlook for the Swedish economy compared to peers, valuation as well as an increased risk of overtightening by the Riksbank.

Divergent SEK forces set to diverge even more

“We expect RB pricing will pick up in line with our new call of a 4.25% peak rate but we argue that ECB is even more under-priced (EUR/SEK positive). Meanwhile, the more the RB hikes now the more they have to cut next year as the economy is likely to take a harder hit (SEK negative).”

“Short term, we don’t see the dividend season as a hinder for EUR/SEK to drop towards our 11.00 target. However, relative fundamentals still suggest a weaker SEK in the medium term.”

“On balance, while acknowledging that risks are abundant and two-sided, we opt to keep the 1-6M forecasts intact – 11.00 (1M), 11.00 (3M), 11.20 (6M) – and lift 12M to 11.40 (11.20).”