EUR/SEK likely to fall to 9.40 by 2016-end

The Swedish krona has been the worst performing currency this year against euro, excluding the pound. The higher movement in the EUR/SEK pair can partially be explained by the shift in interest rates. But the weakness of Swedish krona appears overdone, said Lloyds Bank in a research report.

The Swedish central bank, Riksbank, is expected to welcome the depreciation of SEK and expected stimulus to inflation for now. The central bank continues to be quite sensitive to the inflation outlook, noted Lloyds Bank.

Several policy officials have reiterated their promise to deliver further easing. The bar to additional easing continues to be high, stated Lloyds Bank. In spite of the Swedish economic growth weakening in the second quarter, stronger activity is expected to prevail in the second half of 2016. Furthermore, long-term inflation projections continue to be resilient. With the absence of a noticeable weakening in the outlook of inflation, the Swedish central bank is expected to avoid lowering policy rate further.

“We forecast the EUR/SEK to decline to 9.40 by year end and to below 9.00 by mid-2017," added Lloyds Bank.