NOK and SEK to rebound further in the year ahead – MUFG

NOK and SEK have been two of the hardest hit currencies by the inflation shock in recent years. Economists at MUFG Bank analyze Scandies outlook.

Negative real policy rates undermined confidence in NOK and SEK

Real policy rates became deeply negative especially in Sweden undermining confidence in their domestic currencies. The worst now appears to be in the past. If the Riksbank and Norges Bank keep rates higher for longer than the ECB and Fed given concerns over upside risks from domestic currency weakness, it will encourage the NOK and SEK to rebound further in the year ahead.  

Sweden's economy was the first G10 economy to fall into technical recession. It has proven more sensitive to higher interest rates and helps to partially justify the current weakness of the SEK. We expect the SEK to strengthen in the year ahead as cyclical momentum improves.