A series of hawkish speeches from the Riksbank accompanied by impressions of surprisingly high inflation paved the way for early rate hikes and contributed significantly to the SEK’s rally. The EUR/SEK pair could test 2022 lows if the Riksbank raises rates at its next meeting on Thursday, April 28, economists at Danske Bank report.
Riksbank Talk (and March) Pulls EUR/SEK Down
“We’re sticking with June as the base case, but accepting that the door is wide open for a 25 basis point rate hike in April and that’s a close call. While the month of April appears to be broadly priced, we argued that a rise in April should drive EUR/SEK lower, challenge the 2022 lows and thus the 10.20-40 range and perhaps reach our target of 6M 10.10 earlier than expected.
“If April is a meeting used to signal a series of bulls from June, the knee-jerk reaction might be to push EUR/SEK slightly higher. However, the outlook for the monetary koruna implied is not just about the first bull run. , but also the trajectory, and are proportional to the extent to which the RB allows itself to deviate from the ECB.If it signals a series of bulls from June, we believe that the EUR/SEK remains a rally of sale.
“Finally, a small-step revision towards, say, 2023 seems very unlikely to us, an outcome that could send EUR/SEK significantly higher even though it would probably not be credible. prices would continue to be “ahead of” the RB, limiting the upside.