SEK likely to appreciate moderately against EUR in coming quarters, says Commerzbank

The SEK has not weakened following the Riksbank’s December decision to expand QE. On the contrary, the currency appreciated as the market is largely speculating that the central bank has reached the end of its expansionary monetary policy, noted Commerzbank in a research report. The central bank expanded its program once more; however, it was much smaller than earlier expansions. The central bank might explain this by stating that it did not see any requirement to loosen monetary policy more aggressively.

In the past year, Swedish inflation has been moving in the right direction and is currently close to the target rate set by the central bank. Just half of the central bank’s board members agreed to the recent expansion, implying that the central bankers’ will to further ease policy is diminishing.

Given that inflation is moving nearer to the target rate, the need for a continued expansionary monetary policy is declining. The prospect of an end to the Swedish central bank’s ultra expansionary monetary policy would be positive for the SEK. However, the Swedish currency is expected to eventually appreciate just modestly against the EUR in the next few quarters as the ECB is also increasingly reaching the limits of its expansionary monetary policy, stated Commerzbank.

Furthermore, the central bank is not expected to accept a rapidly strengthening SEK to not to endanger the recent optimistic development in inflation rates. However, the SEK is expected to depreciate against the USD as the U.S. Fed might continue to further hike its rates in the coming year providing a boost for the USD, added Commerzbank.