EUR/SEK: Riksbank’s monetary policy communication is adding hurdles to the Krona recovery path – ING

The Riksbank’s dovish turn looks a bit premature, economists at ING say.

EUR/SEK can trade higher from these levels in the short term

We suspect that the easing guidance offered in February can end up being counterproductive. That is because – as admitted by the Riksbank itself – avoiding a weakening of the Krona remains crucial for the inflation battle, but at the same time the early easing guidance (along with the end of FX sales) puts the SEK in a fragile spot if sentiment turns negative for high-beta FX. 

We think EUR/SEK can trade higher from these levels in the short term, but the Riksbank may well be ready to redeploy FX sales should SEK weaken too much. 

Our medium-term view for the pair is a break below 11.00, but once again we suspect the Riksbank’s monetary policy communication is adding hurdles to the SEK recovery path.