EUR/SEK likely to witness increased downside risks until year-end, says Commerzbank

The EUR/SEK currency pair is expected to witness increased downside risks until the end of this year. The upside potential in EUR/SEK as a result of the data is limited, as inflation in the eurozone is likely to be much weaker than in Sweden over the coming months, Commerzbank reported.

The Swedish krona has stood up remarkably well against the euro this year, despite the fact that the Swedish Riksbank has been maintaining a very cautious approach. The main factor supporting the currency is the inflation development in Sweden.

Reduced political risks, as well as the prospect of a slow end to the expansionary monetary policy, have supported the euro this year. After all, Riksbank has not stood out with a particularly hawkish approach this year.

Despite the positive price development, Riksbank remains cautious. In view of the very long period of low inflation rates, it fears that current inflation expectations could easily become unanchored again. In the end, it wants to avoid that it normalizes its monetary policy too early, the report said.

It was already accused of having raised interest rates too soon and too quickly in 2010 which is what caused or intensified the subsequent deflationary period. However, due to the now relatively pronounced rise in inflation in Sweden the market does not seem to believe that Riksbank will be able to delay the normalization of its monetary policy for much longer.

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