Swedish Krona: Riksbank support for SEK against Euro – ING

ING’s Francesco Pesole highlights that EUR/SEK has fallen about 1.8% from its early-October high, helped by French fiscal concerns and prior short-term overvaluation. The pair is now seen as fairly valued, unlike cheap EUR/USD. With the Riksbank signalling readiness to hike in November and ECB expectations repriced dovishly, ING’s one-month EUR/SEK target is 11.15, with risks skewed to further downside.

Krona benefits from hawkish Riksbank

"EUR/SEK has corrected around 1.8% from the 1 October 11.36 high, with a major contribution from French fiscal risk. It’s important to note EUR/SEK was starting from a marked (around 2%) short-term overvaluation at the end of September, and it’s now fairly valued – unlike EUR/USD, which is cheap according to our models."

"The move is likely welcomed by the Riksbank, which has been keeping a closer eye on the krona’s weakness now that inflationary risks are rising. September CPIF inflation didn’t scream a rate hike, headline at 1.5% and core at 0.5%, but the Riksbank has clearly signalled it’s ready to hike in November, and we see a high bar for a rethink."

"A hawkish Riksbank and dovish repricing of ECB expectations have narrowed the two-year EUR/SEK swap spread by nearly 20bp over the past couple of weeks. While its correlation with EUR/SEK can be patchy, the move currently supports a lower spot. Our one-month target is 11.15, with risks tilted to the downside."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)