Danske Bank analysts anticipate further weakening of the Swedish Krona (SEK) against major currencies, particularly the Euro (EUR) and the US Dollar (USD), citing a combination of cyclical challenges, relative central bank policies, and structural flow dynamics.
The SEK has experienced a significant rebound year-to-date; however, Danske Bank remains cautious about its outlook due to the current cyclical backdrop. The Eurozone’s subpar and recession-like growth projections pose a headwind for the SEK, despite the Swedish economy’s anticipated recovery from the recession it entered in Q3 2023.
While the Swedish economy is expected to improve, challenges persist, including stagnant domestic demand and a sluggish housing market. Danske Bank analysts express concerns about the cyclical factors impacting the SEK’s performance in the coming months.
In terms of central bank policies, Danske Bank predicts that the Riksbank will closely follow the European Central Bank (ECB) in its easing cycle. Additionally, the Federal Reserve’s influence on other central banks is expected to prevent it from significantly leading in monetary policy changes. This positioning leaves the SEK vulnerable from a rates perspective.
Structural flows further contribute to the headwinds facing the SEK. Danske Bank highlights the enduring challenges posed by structural factors, indicating a sustained difficulty for the Swedish currency.
Danske Bank sets a target of 11.60 for the EUR/SEK currency pair over the next 6-12 months, reflecting their expectation of continued weakness in the Swedish Krona against the Euro. The analysis underscores the multifaceted challenges confronting the SEK, emphasizing the importance of considering cyclical, central bank policy, and structural factors when assessing its future performance.
