Swedish economic and FX update: Pessimism reality check
Sweden is facing some rather severe economic headwinds, and recent evidence of negative growth paired with lingering concerns about a fragile real estate sector have contributed towards keeping the Swedish krona under pressure. From some angles, however, investors may be overestimating the downside risks to Sweden’s activity outlook. In this bundle, we take a deeper look into the country’s economy and how we're expecting the Riksbank to respond.
On the FX side, the krona is trading at all-time lows. We suspect that more pain may be on the cards in the near term as the environment for pro-cyclical currencies remains challenging. EUR/SEK may touch or even break 12.00 soon, but the Riksbank will likely play a key role in halting the rally. Looking ahead, we expect a SEK rebound. The question is more timing than direction since the krona is very undervalued. External, more than domestic drivers, hold the key to that rebound.
