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Economists at Credit Suisse expect EUR/SEK to fall further, potentially below the 10.10 level in coming weeks, and look to fade rallies to 10.23. Rising covid numbers remain the key risk, but the bar for more stringent restrictions remains high. What’s more, the 27 April Riksbank meeting is in focus.

Moderately constructive view on SEK intact

“SEK is likely expected to continue to benefit from supportive fiscal policy in the near-term: the spring budget, boosted spending by SEK45 B, taking total Covid-related spending to SEK240 B. The budget also extended furlough measures up to June 2021, enabling employers to cut their salary expenses by up to 50%, with employees retaining up to 90% of their salary. Sweden’s public debt, expected to rise to 41% of GDP by the end of 2021, is still very low by all standards.”

“New cases on a population adjusted basis are trending high and are accelerating. Meanwhile, the level and momentum of the vaccination campaign is in line with the rest of continental Europe. Stringency indices and mobility data do not suggest an outsized impact to growth from current restrictions, but the high case load suggests that risks of further lockdowns might take longer to dissipate than in other countries.”

“Ahead of next week’s Riksbank rate decision, markets maintain a slight medium-term easing bias for monetary policy, with the RIBA futures curve fixing slightly below 0% up until the Sep 2022 tenor. As for next week more specifically, markets expect the bank to leave its key rate unchanged, and to keep its projected rate path at 0.00% until at least 2024. Potential changes in the Riksbank’s asset purchase program of SEK700 B are instead likely the key point of focus.”

“We maintain our EUR/SEK target unchanged at 10.10 for the time being, as we still view the possibility of a reduction in asset purchases by the Riksbank for technical reasons as a tail risk, rather than as a baseline scenario.”  

“We are inclined to fade spikes in EUR/SEK towards the 200-DMA around 10.23 and, in the event of a sustained breach below our 10.10 target, we think that positioning for a reversal would likely not offer attractive risk-reward until the cross trades as far as 10.00.”