Swedish macro has disappointed recently, and the long-awaited cyclical rebound has yet to materialize. The weak growth prospects have evidently started to unnerve the Riksbank somewhat, as it was cited as the main reason for them to ‘go big’ by cutting 50bp at the November meeting. Despite recent macro disappointments, we continue to pencil in a substantial growth recovery in 2025, where we also see the Swedish economy outperforming the eurozone. However, this is probably not enough to turn into an outright SEK tailwind as the global cyclical outlook with a continued US outperformance tend to be SEK negative, Danske Bank’s FX analysts note.

Medium-term outlook for the SEK remains challenging

“Despite current and still fragile growth prospects, we see the November move as a ‘one-off’ and expect them to revert to 25bp increments for the coming meetings, with the next cut already in December. We are also looking forward to the Riksbank’s updated estimate of the Swedish neutral rate, which they have promised to discuss at the December meeting. This estimate will give further insights on what level the Riksbank sees for the terminal rate. In 2025, we pencil in three additional rate cuts (Jan, Mar & Jun), bringing the terminal rate to 1.75%.”

“We remain strategically bearish on the SEK. However, we argue that the recent broad SEK selloff has been exaggerated. Our relative rates model has fair value for EUR/SEK at 11.25. Hence, the cross has reached stretched overbought levels, where historically spot has been prone to a significant correction. Additionally, the SEK enters its most constructive period of the year, with multi-year seasonality indicating a substantial downside in most SEK crosses through year-end. As such, we keep our 1M forecast intact.”

“The medium-term outlook for the SEK remains challenging, though. US outperformance in terms of growth prospects and rates weigh on European currencies including the krona. Relative monetary policy is another headwind as the Riksbank front runs peers. A continued USD rally and/or a massive sell off in global equities account for the primary upside risks to our near-term forecast horizon.”