EUR/SEK slightly higher on weakening of risk appetite

The Swedish krona has repressed potential because of the comparatively solid growth outlook and performance. Swedish central bank, Riksbank, has totally acknowledged this via its KIX forecast. In March, Sweden’s production data unexpectedly showed positive results. However, the risks to the Q1 GDP projection of 3% y/y is slightly skewed towards the downside, hence indicating slowdown but not weakness, noted Danske Bank in a research report.

“Relative growth remains, in our view, an argument for lower EUR/SEK going forward”, said Danske Bank.

At present Sweden’s inflation is close to the central bank’s forecast and is expected to remain around those levels for the next few months, according to Danske Bank. Inflation expectations continue to rise. The SEK is lower than the central bank’s forecast. These suggest that the Riksbank should keep the policy on hold. The central bank is expected to keep its policy unchanged unless the European Central Bank makes significant alterations to its policy stance, added Danske Bank.

The Swedish krona is undervalued from a perspective of a medium-to long-term. Additional shocks to risk appetite, such as the EU referendum result, might continue to be an obstacle for the krona. The EUR/SEK pair has moved slightly higher mainly due to softening of risk appetite. Even if the UK EU referendum might be a drag on risk sentiment, “the macro backdrop is highly supportive for downside”, noted Danske Bank.

“On balance, we raise our 1M forecast to 9.20 (9.10) and keep the 3-12M forecast intact at 9.10, 9.00 and 8.90”, said Danske Bank.