EUR/SEK to tick modestly in the medium term – Rabobank

The Bloomberg survey indicates a unanimous expectation among economists polled for a 25bp rate cut from the Riksbank at tomorrow’s policy meeting. The Reuters poll suggests the consensus favors two more moves of 25 bps before the end of the year, notes Jane Foley, Senior FX Strategist at Rabobank.

SEK looks cheap

“The combination of stimulus from monetary and fiscal policy has had a clear impact on confidence levels. Although the Swedish economy has stagnated for several quarters, consumer confidence has trended higher since the lows of late 2022. This week’s publication is expected to show another gradual improvement.”

“It is hoped that this will be reflected in future retail sales data. In July, retail sales rose 0.5% y/y, compared to a -0.8% y/y decline in June. Other data also show signs of improvement. Sweden’s manufacturing PMI release rose to a better-than-expected 52.7 in August, suggesting signs of recovery are expanding.”

“Surveys are also showing signs of optimism about the outlook for prices in the hard-hit housing sector, stemming from hopes of lower mortgage rates. That said, the high level of housing supply is likely to dampen the recovery. Historically, the SEK looks cheap. Based on Sweden’s improved economic outlook, we expect EUR/SEK to be slightly lower over the medium term, despite the accommodative nature of the Riksbank.”