Nordea’s Ole Håkon Eek-Nielsen and Henrik Unell, notes that EUR/SEK has broken to new lows as the SEK bull story aligns with Dollar weakness and strong repatriation flows. They highlight Swedish institutions and retail investors reducing US and global equity exposure, and see SEK as not expensive versus the Euro or Dollar despite rapid gains.

Reallocation and flows underpin SEK

"House view: It took 9 months for the EURSEK to take out a new low after the 10,77 April-25 print. The SEK bull story moves in parallel with the weakening of the dollar and continuing repatriation flows."

"Domestically we see institutions reducing dollar exposure (Alecta and several other Swedish pension funds even selling, not hedging, US treasuries) in combination with continued disposing of global equity funds (World MSCI with 70-75% dollar exposure) from the retail sector."

"Strong global macro fundamentals and the domestic economy should support the value of the SEK going forward. The macro picture and relative monetary policy is to a large extent playing second fiddle to the effects of geopolitical diversification and deglobalization of capital."

"The speed of the EURSEK moving lower should make you tread carefully but our forecast is in sync with the current trajectory. We don’t see the SEK being expensive at these levels, not against the euro and definitely not against the dollar."

"Risk scenario: The Riksbank has a legacy of being extremely unfriendly vis á vis the currency with its extreme monetary policy. Low temporary inflation readings going forward should be looked through but you never know with this ultra dovish institution."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)