EUR/SEK could edge higher – Danske Bank

Head of FI Research at Danske Bank Arne Rasmussen assessed the current weakness in scandie crosses.

Key Quotes

“Scandies come under some pressure yesterday and both EUR/NOK and EUR/SEK are trading close to weekly highs this morning. The trade-weighted SEK is almost 2% stronger than the Riksbank’s forecast (KIX), which is mostly attributable to the dollar collapse where we have seen USD/SEK dropping 5% over the past month. This might already be a challenge for investors heavily exposed to US assets and with a low hedge ratio. We have long argued that many of the reasons for having a high currency exposure on US holdings have gone away, such as valuation no longer being attractive and the high negative correlation between US equities and USD/SEK having gone”.

“The SEK’s advance versus the EUR has been fundamentally justified on the back of recent GDP and inflation data, in our view. It is also justified by our short-term financial models, which have a fair value of around 9.50”.

“We note, however, that the Swedish surprise index is now at high levels, so the SEK might get less support from here going forward. Services PMI tomorrow (Thursday) and production data next week are the next macro numbers to keep eye on. On 15 August, we estimate July CPIF inflation will come in three tenths above the Riksbank’s estimate at 2.1%, which could fuel further selling of EUR/SEK”.