EUR/SEK: Riksbank and inflation to push the pair higher – Danske Bank

The coronavirus outbreak is set to weigh on Swedish growth in H1, while core inflation (CPIF ex energy) is likely to deviate from the Riksbank’s optimistic forecasts. Analysts at Danske Bank forecast a higher EUR/SEK for the next months. 

Key quotes

“Supply chain disruptions and other spill-over effects from the coronavirus outbreak will likely weigh on global growth during Q1, supporting our call of a weak H1for Swedish growth.”  

“We expect (core) inflation to deviate quite substantially from the Riksbank’s forecast from here on. This is likely to weigh on inflation expectations, which have already begun de-anchoring. Riksbank pricing is now completely flat up until end-2021, which seems reasonable to us.” 

“While risk appetite may continue to pull the EUR/SEK pair lower near term, we would emphasize that carry trades typically thrive in such an environment. Hence, we continue to see headwinds for the SEK going forward especially vs the USD.”

“In addition, if we are right on inflation, the market should soon start pricing in some probability of the Riksbank returning to negative territory, which should push EUR/SEK higher. Our forecasts are 10.50, 10.60, 10.80 and 10.80 in 1M, 3M, 6M and 12M respectively.”