EUR/SEK likely to drop to 9.20 by end-2017, says Lloyds Bank

In the past month, the Swedish krona has been consolidating in a narrow range of 9.50 to 9.65 against the euro, with conflicting forces pulling EUR/SEK in opposing directions, noted Lloyds Bank in a research report. ‘Hard’ and ‘soft’ euro area data have been solid, the ECB has amended its forward guidance to be less ‘dovish’ and political uncertainty has dropped, all underpinning the euro.

In the meantime, the Swedish economy continues to be amongst the best performing in the developed world. The second quarter economic growth came in at 4 percent year-on-year, while the trend jobless rate continues to be on a downwardly trajectory. Despite of the rebounding economic outlook, the Riksbank is reluctant to move away from its dovish stance, although it conceded that it is “now less likely to cut the repo rate than before”.

Weak core inflation is one rationale for its position. However, the risks to Swedish rates are skewed towards earlier-than-expected tightening. Moreover, on a fundamental basis, the SEK is viewed to be undervalued.

“We forecast EUR/SEK to drop to 9.20 by the end of the year”, added Lloyds Bank.

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