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Swedish krona to appreciate against euro later in 2015

In a new report SEB’s experts project the Swedish krona will appreciate over the course of 2015 and reach 9 kronor per euro at year-end on the back of strong performance from the Swedish economy, attractive current valuation of the krona and few other factors.

A recent survey by SEB among companies and institutions that trade the krona shows the respondents believe actions from Sweden’s central bank, the Riksbank, is holding back the krona’s appreciation the most.

In the short term SEB’s experts believe the krona will remain under pressure, but is unlikely to move much in either direction. However, over time that will change.

“With foreign-exchange markets in the hands of policymakers, the ultimate question concerns when the Riksbank will regard inflation as sufficiently high to take a more relaxed position on the exchange rate,” says Carl Hammer, SEB’s Chief foreign-exchange strategist.

Hammer forecasts CPIF, a key measure of inflation, will continue slightly higher in coming months, with an annualised rate at or above 1.5 per cent likely ensuring a slightly more relaxed Riksbank attitude.

Currently the krona trades at just above 9.30 to the euro. Five factors are likely to push that to around 9 kronor by December.

  1. Strong fundamentals in Swedish economy
  2. An attractive valuation of the krona
  3. Short speculative market positioning
  4. Supportive flow
  5. Rate hikes by the Federal Reserve in second half of the year and potentially lower asset purchases by the ECB will facilitate the Riksbank’s task

Although the Riksbank has come a long way in easing Swedish monetary policy, SEB’s experts expect further measures, including another rate cut at its April meeting to -0.4 per cent from the current -0.25 per cent and a further 50 billion kronor increase in asset purchases.

These moves should exert more downside pressure on Swedish 2-year interest rates so the spread between Swedish and German 2-year swap rates will continue to widen to -0.3 per cent. This will prevent the krona appreciating against the euro in the near-term.