EUR/SEK to edge higher towards 10.30 amid a dovish Riksbank – Danske Bank

EUR/SEK remains in the higher end of the recent 10.15-10.25 range. With economic recovery showing signs of having reached its peak and a dovish repricing of the Riksbank, economists at Danske Bank forecast a gradual weakening of the krona in the medium-term and forecast EUR/SEK to 10.30 in six months.

A dovish repricing of the Riksbank

“The global economic recovery is ongoing though with clear signs of losing momentum. This makes a headwind for reflation trades in general and not least the pro-cyclical Swedish krona.”

“While we continue to see the repo rate being unchanged for the next couple of years, our sub-Riksbank inflation forecast must be viewed as a downside risk for the repo rate and SEK.”

“We leave the forecast profile unchanged at 10.20 in 1M, 10.20 in 3M, 10.30 in 6M and 10.40 in 12M.” 

“A comeback of the global reflation theme would weigh on EUR/SEK. If the Riksbank would indicate a rate cut, the partial effect would be to send EUR/SEK substantially higher.”