We flagged that if the Riksbank opts for a frontloaded FX reserves hedging program it could be the straw that breaks the camel’s back. They did. And it was. However, we see this as a transitory effect unless other investors follow suit (see Flows section). With structural and cyclical, including monetary policy, headwinds still in place we foresee no major turnaround in the SEK over the medium term. 

Short term, we note that EUR/SEK is slightly (one standard deviation) above rates-implied fair value (downside magnet currently around 11.50) as risk appetite has deteriorated. We deem it unlikely that a resolution is reached between Hamas and Israel in the near term. This alongside any further gains in US yields could have adverse effects on risk and global growth prospects and by extension pose an upside risk to EUR/SEK. 

Forecast 11.60 (1M), 11.50 (3M), 11.70 (6M), 11.80 (12M)