SEK likely to strengthen slowly in coming year, EUR/SEK to trade around 9.0 by end-2016

In spite of increased likelihood of additional policy easing by late 2016, EUR/SEK has traded in a narrow range between 9.20 and 9.30 in the past month. The Swedish central bank continues to be susceptible to the negative impact on inflation from SEK’s appreciation. Meanwhile, many officials have repeated that they will do more if sentiment regarding inflation outlook weakens.

In the last quarter of 2015, the Swedish economy grew 1.3%, whereas the jobless rate continued to be near a seven-year low. Furthermore, expectations for inflation continue to be resilient. Even though SEK faces upside risks from additional easing of monetary policy in Europe, the Riksbank is expected to avoid lowering rates further in the absence of noticeable weakening of inflation outlook, noted Lloyds Bank.

“We forecast the SEK to appreciate gradually over the coming year, with EUR/SEK drifting lower to around 9.0 by end 2016”, added Lloyds Bank.