EUR/SEK: Cautious Riksbank unlikely to halt krona’s strength in 2021 – ING

The Swedish Riksbank has framed its first meeting of the year with a cautious tone. While modestly surprising the market, the bias coming from the meeting is not enough, on its own, to push EUR/SEK below the 10.00 level. Economists at ING expect the pair to trade around 10.10 in the coming days.

Key quotes

“A further extension to the quantitative easing programme is possible later in the year, particularly if the downside risks surrounding the virus materialise - though a return to negative rates remains unlikely.”

“With the central bank striking a balancing act between a somewhat improved economic outlook, and inherent caution, the knee-jerk reaction saw the krona strengthen as some market participants had been entertaining the idea of more asset purchases, particularly after the Riksbank's dovish surprise at its November meeting.”

“For the EUR/SEK to break below 10.00, we need to see the 2Q economic recovery in the eurozone and Sweden, which will then benefit cyclical currencies such as SEK.” 

“Near-term, we expect EUR/SEK to continue hovering around the 10.10 gravity line, with the next leg of SEK strength likely coming in 2Q, rather than in coming days.”