SEK: Soft Riksbank dominates strong macro – Danske Bank

With a softer than expected Riksbank, the research team at Danske Bank believes that the potential for a large SEK strengthening is limited but, fundamentals will continue to be SEK supportive and they therefore look for a more gradual strengthening.

Key Quotes

“We see EUR/SEK in 9.60 in 1M, 9.50 in 3M, 9.50 in 6M and 9.30 in 12M.”

“The growth picture is still an argument for a medium-term rebound in the SEK, with above-trend, above-peer growth and a very strong labour market. The problem, for the Riksbank and, thus, for the SEK is that strong growth does not fuel enough inflation.”

“The Riksbank’s persistence, provided it is credible, continues to be a challenge for anyone believing the SEK is a strong buy from a macro or fundamental view. Our inflation forecasts suggest that speculation on early removal of the current stimulus is premature. While we do not expect further rate cuts or more QE, we think the Riksbank will be forced to postpone its first hike (now Q3 18) further (into 2019).”

“The Riksbank surprised with a QE taper extension and the minutes confirmed a soft tone. We cannot rule out further stimulus if inflation disappoints but we do not expect it. It seems to us that the Riksbank is getting better traction in the currency market than the money market, while the SEK is arguably weaker but the money-market curve is still steeper than the Riksbank path. As long as the Riksbank and ECB stay soft, it is likely to hinder any meaningful rebound in the SEK.”