EUR/SEK to target 10.10 on recovery tailwinds in 2021 – Danske Bank

The Swedish krona has been one of the winners in the autumn, aided by stimulus and improving risk sentiment. Analysts at Danske Bank target EUR/SEK around 10.30 in 1-3 months before a move towards 10.10 in 6-12 months on recovery tailwinds. 

Key quotes

“The global economy is entering a soft patch in Q4 and throughout Q1 on the back of the resurging coronavirus pandemic and ensuing restrictions. The same applies for Sweden, which we believe will also feel repercussions from a slowdown in Europe. Hence, we should see headwinds for procyclical currencies throughout the winter. Brighter prospects for a vaccine mean brighter prospects for growth in 2021, lending support to pro-cyclical currencies further out.” 

“If inflation expectations drift further away from the target, we doubt prolonged SEK appreciation would be acceptable. A lack of inflation pressure remains a medium-term headwind for the SEK.”  

“EUR/SEK has fallen more than 10% from the peak. However, the COVID-19 situation (alarming) and the growth outlook for Q4-Q1 (slowdown) suggest a setback in the coming months. Later in 2021, we see SEK tailwinds re-emerging amid better global growth prospects. 

“On balance, with the vaccine news in mind, our forecast profile is 10.30 in 1-3M and 10.10 in 6-12M.”