EUR/SEK likely to trade around 9.80 by end-2018, says Lloyds Bank

The Swedish krona depreciated to its weakest level against the euro since July 2009 in May. But from its high, the EUR/SEK pair has begun to pull back. From a fundamental perspective, there appears little justification for the krona to soften beyond 10.70, noted Lloyds Bank in a research report.

The Swedish central bank has echoed this, with Deputy Governor Skingsley recently implying that the SEK had dropped slightly more than warranted by data. Sweden’s economy is on a reasonable footing. The jobless rate is nearing a cyclical low, and business and consumer sentiment continue to be strong.

Given that inflation remains just below 2 percent, there is a reasonable argument for the Riksbank to move interest rates higher and it expects to do so by the end of 2018. The interest rate differential is expected to put pressure on EUR/SEK, given that the ECB is expected to start raising policy rates in the second quarter of 2019.

“Our model-driven estimates also suggest that the krona is fundamentally “undervalued”. All considered, we forecast EUR/SEK at 9.80 for end-2018”, added Lloyds Bank.

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