All Is Calm in Sweden's Currency Market

  • EUR/SEK 1-month implied volatility drops to lowest since 2014
  • Some investors may need to reduce exposure to volatility: SEB

A measure of anticipated swings for Sweden’s krona may slide further after dropping to the lowest level in more than two years, analysts say, as the nation’s central bank has indicated that it’s in no hurry to move away from its monetary accommodation.

The krona’s one-month volatility versus the euro fell to the lowest since September 2014 after the Riksbank said during last week’s policy review that it doesn’t see a need to tighten policy prematurely and subsequent data showed inflation trailing economists’ median forecast.

Investors who have bid up volatility may need to trim their positions in light of the central bank guidance, according to SEB AB.

“With EUR/SEK continuing to trade sideways, and option structures with short tenors getting closer to their expiry dates, there are some investors who need to reduce their growing long gamma positions to limit their exposure, which could lead to even lower implied volatility in the near term,” Fredrik Lockne, a Stockholm-based currency options specialist at SEB said in an interview.

External, rather than internal factors, may ultimately push up the krona’s volatility, according to ING Groep NV.

“No doubt buying SEK vols look attractive, particularly if you want to position for euro-zone risk given the krona’s vulnerability to euro-zone political risk, but you need an external catalyst for krona vols to spike,” ING strategist Petr Krpata said in e-mailed comments. “EUR/SEK vols, on their own, do not show a material dislocation, despite the recent pronounced fall.”

* EUR/SEK rises 0.2% to 9.4787 Monday, within February range of 9.4109/9.5022

* EUR/SEK 1-week implied volatility dropped to 4.4175 on Friday, the lowest since April 2014; 1-month implied volatility fell to 5.0475 Monday, lowest since Sept. 2014

* EUR/SEK 25-delta 1-week risk reversals trades as high as 0.6850 Monday, a level last seen in November

— With assistance by Vassilis Karamanis

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