SEK: Near-Term Vulnerability Amid Economic Headwinds and Rate Hike Expectations

SEK: Still vulnerable in the near term

We have published two updates on Sweden for both its economic outlook and the krona’s near and medium-term outlook. The key points of our economic and FX updates are:

• The Swedish economy is facing significant headwinds, but investors may have overestimated the magnitude of some downside risks, including in the real estate sector
• The Riksbank should hike rates in September but will need to signal another hike in its rate path to halt the slump in the krona
• Before the Riksbank meeting, EUR/SEK might test 12.00 as the external environment remains very challenging for pro-cyclical currencies
• We still expect a rebound in the krona in 2024, but the timing is very uncertain and is tied to a turn in global FX dynamics (i.e., a turn in the dollar) more than in domestic factors