Sweden’s ambition for a weaker, more competitive currency will eventually be undone by unprecedented stimulus in the euro zone, according to the nation’s biggest foreign-exchange trader.
SEB AB predicts the krona will stay at around 9.3 per euro over the next two months, kept from appreciating by an interest-rate cut in July. It will then strengthen to 8.8-8.9 in the second half “as inflation picks up and the Riksbank runs out of ammunition and willingness to defend the krona weakness,” said Carl Hammer, SEB’s chief currency strategist in Stockholm.
Sweden’s currency climbed against all 16 of its major peers on Thursday, continuing the previous day’s advance after the Riksbank refrained from lowering the repo rate from minus 0.25 percent. It did pledge to boost the money supply, which would normally depreciate the currency, though at as much as 90 billion krona ($11 billion) Sweden’s bond-purchase program remains a fraction of the $1.2 trillion planned by the European Central Bank.
“We’re moving toward an unavoidable strengthening of the krona since it’s unreasonable that the Riksbank is able to keep up with the ECB,” Hammer said in a note.
UBS Group AG is optimistic Swedish policy makers will follow through on warnings that they may intervene in currency markets to weaken the krona.
“Clearly, the Riksbank is fast assuming a zero-tolerance attitude toward krona strength, and it will act if euro-krona approaches 9.2,” UBS analysts including London-based Geoffrey Yu wrote in a note to clients.
The krona has strengthened 2 percent this year to 9.2643 per euro as of 12:12 p.m. in London. The median forecast of strategists surveyed by Bloomberg puts it about 1.5 percent stronger by year-end at 9.12.
“It’s impossible” for the Riksbank to “continue for another year to buy government bonds at the same pace” as the ECB, said SEB’s Hammer. “It can’t be done. The market is too small.”