EUR/SEK: Downside risks have increased for the krona – MUFG
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The Swedish krona has been trading in tight ranges this year. EUR/SEK has only briefly risen above the 10.000 to 10.200 range. Economists at MUFG Bank weigh up the balance of risks for SEK ahead of the Riksbank meeting, which could bring an end to this year’s range trading.
Riksbank is unlikely to follow Fed and adopt more hawkish policy stance
“Like for other G10 central banks, market participants will be watching closely for any signs that the Riksbank could follow the Fed and signal a hawkish policy shift in response to higher inflation in the near-term. However, we expect those hawkish expectations to be left disappointed as the Riksbank retains its position as one of the most dovish G10 central banks.”
“The Riksbank is expected to unveil modest upgrades to their growth and inflation forecasts but remain committed to keep rates on hold through 2024. It is unlikely to provide further encouragement for market participants who are already pricing in earlier rate hikes from mid-2023. Plans have already been laid out to end QE this year and maintain the size of the balance sheet next year. Similar to the two earlier Riksbank meetings this year, we expect another limited SEK reaction.”
“The Fed’s hawkish policy shift has increased downside risks for the SEK. However, a deeper correction lower for risk assets will be required to trigger a more sustained SEK sell off. Those downside risks could be partly offset if the Riksbank brings forward their own rate hike plans next week and encourages a stronger SEK. A development we see as unlikely as the Riksbank remains dovishly inclined.”
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