EUR/SEK to move downward amid hawkish communication from Riksbank – Danske Bank

EUR/SEK initially continued its move higher on souring risk sentiment but has since completed a rather remarkable comeback on a repricing of the Riksbank. Strategists at Danske Bank revise their forecast for EUR/SEK lower on the outlook for Riksbank rate hikes and now expect a move to 10.10 in six months.

SEK supported by hawkish shift from Riksbank

“While FX has been much about risk sentiment and rebalancing recently, price action this week shows that monetary policy should clearly be part of the puzzle and now it seems to be an argument for lower EUR/SEK.” 

“Our new call with hikes in September and November will lend support to the SEK in the coming months even though one can argue that it is priced: buy the rumour, buy the fact.” 

“If the Riksbank delivers what is perceived as a final shot in February 2023, it could be accompanied by headwinds for the SEK as markets temper their expectations on how high the repo rate will go and also via slowing growth expectations, which limits the downside in EUR/SEK in the medium-term.”