Swedish krona likely to strengthen gradually in months ahead, EUR/SEK to drop to 9.20 by end-2017

After briefly appreciating to a year-to-date high above 9.80, recent weeks have witnessed the Swedish krona strengthen towards 9.60 against the euro, noted Lloyds Bank in a research report. During its policy meeting in July, the Riksbank kept interest rates on hold. But after slightly higher-than expected inflation for May, the Riksbank shifted tone by implying that it is “now less likely to cut the repo rate than before”.

The Swedish economic data continue to considerably perform well. Household consumption continues to be strong, while jobless rate is in a medium-term downtrend and manufacturing and services PMIs are solid.

Furthermore, the constructive outcome of the French elections has lowered the political uncertainty in Europe that should also help Sweden. Given this, the Riksbank is unlikely to ease further. Moreover, on a fundamental basis, the SEK is considerably undervalued, stated Lloyds Bank.

“We forecast a gradual strengthening in the coming months, with EUR/SEK dropping to 9.20 by the end of the year”, added Lloyds Bank.

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