SWEDISH KRONA TO BE HIT NEXT BY DOVISH POLICY UPDATED FROM RIKSBANK – MUFG

The Swedish Krona (SEK) has weakened ahead of Riksbank’s policy meeting on Wednesday. Economists at MUFG Bank analyze SEK outlook.

Riksbank to provide dovish policy guidance that could tee up a rate cut as soon as May

We are recommending a new long EUR/SEK trade idea. The main rationale for the trade idea reflects our expectation that the Riksbank will be the next European central bank to begin cutting rates which we expect to encourage a weaker SEK in the coming months.

While we don’t expect the Riksbank to lower rates at Wednesday’s policy meeting, the updated policy guidance should open the door to the first rate cut being delivered as soon as at the following meeting in May. 

There are two main risks to the trade idea: i) the Riksbank proceeds more cautiously given ongoing concerns over SEK weakness, and ii) the global economy and Sweden’s economy start to recover more strongly than expected this year providing more support for SEK. We see only a limited risk that the ECB begins to cut rates earlier in April rather than in June.