A streak of hawkish Riksbank speeches alongside surprisingly high inflation prints have paved the way for front-loaded rate hikes and contributed significantly to the SEK rally. The EUR/SEK pair could test 2022 lows if the Riksbank hike rates at its upcoming meeting on Thursday, April 28, economists at Danske Bank report.

Riksbank’s talk (and walk) pulls EUR/SEK lower

“We stick to June as our base case but admit the door is wide open for a 25bp rate hike in April and that it is a close call. While April looks by and large-priced in, we have argued that an April hike should send EUR/SEK lower, challenging 2022 lows and thus the 10.20-40 range and possibly reaching our 6M 10.10 target earlier than anticipated.”

“If April is a meeting that is used to signal a series of hikes starting in June, the knee-jerk reaction might be to push EUR/SEK slightly higher. However, the monetary policy-implied krona outlook is not only about the first hike but also the trajectory, and proportional to how much the RB allows itself to deviate from ECB. If it signals a series of hikes starting in June, we believe EUR/SEK remains a sell-on rallies.”

“Finally, a baby step revision to, say, 2023 seems very unlikely to us, an outcome that could send EUR/SEK sharply higher even though it would probably not be credible. That is, pricing would continue to be ‘ahead of’ the RB, limiting the upside.”