Swedish krona likely to appreciate gradually against euro in coming year

The EUR/SEK pair has traded in a small range between 9.20 and 9.40 in the past month. This shows lesser volatility as compared to the major currency pairs, said Lloyds Bank in a research report.

The Swedish central bank’s previous policy rate cuts appeared to have aided in stemming the possibility of a severe rise of its currency.

But the Riksbank continues to be quite sensitive to the downward effect on inflation that might stem from a continued SEK appreciation. Several officials have repeated their statement that they will do more if sentiment around the outlook of inflation weakens.

However, the bar has been raised for additional easing due to the recent economic developments. In the first quarter, the Swedish economy grew 0.5% q/q, while the long-term inflation expectations continued to be resilient. Even if more expansive monetary policy in Europe poses a risk on the upside to the SEK, the central bank is unlikely to further lower policy rate in the absence of a noticeable weakening in the inflation outlook, according to Lloyds Bank.

“We forecast the SEK to appreciate gradually over the coming year, with EUR/SEK drifting lower to around 9.0 by end 2016,” added Lloyds Bank.