SEK: Bearish view intact - ING

Despite the signal for a hike in either December or February from Riksbank, analysts at ING remain firmly bearish on the Swedish krona and expect EUR/SEK to reach the 11.00 level by the year.

Key Quotes

“Not only has the Riksbank got a strong track record of delaying the signalled hikes (today’s meeting being a case in point), but in our view the probability of December or February hikes in great part depends on the SEK price action / weakness  (though note that the Riksbank has been continuously staying on hold despite SEK weakening materially and persistently vs its own forecast).”

“This means SEK weakness must come first for the Riksbank to react (if it reacts…). Hence, we don’t believe the Riksbank policy stance will be a catalyst for SEK strength. Riksbank will, in our view, only put a limit on the scale of SEK weakness, but only if SEK weakens first. Hence our firmly bearish SEK view.”

“Apart from our dovish Riksbank view, other factors should continue weighing on SEK. On a seasonal basis, SEK tends to weaken during fourth quarters due to the sharp decline in the inter-bank Stibor rates (due to the resolution fund consideration).”

“This should keep idiosyncratic pressure on SEK. Bar the upcoming elections and still relatively dovish Riskbank, we believe the fragile risk environment and the ongoing trade war overhang should be also negative for SEK.”

“Note that Sweden is a small open economy, meaning it is very vulnerable to concerns about the direction of global trade which should, in turn, weigh on SEK. We target the EUR/SEK 11.00 level in 4Q 2018.”