With the exception of Japan, where the BoJ is engaged on a policy tightening cycle, Sweden is the only G10 economy for which the market sees no real risk of further central bank easing on a 1-year view, Rabobank's FX analyst Jane Foley reports.

Swedish economy key to sustaining SEK strength

"In Rabobank’s view the ECB has also likely completed its rate cutting cycle. However, implied policy rates suggest the market is priced for around another 19 bps of easing by the tail end of next year. Although the SNB declined to push rates below zero at its latest policy meeting last month, the market is priced for this to happen in the coming months. Larger rates cuts are expected from the Fed, BoE, RBA, BoC, Norges Bank and RBNZ on a 1-year view (in that order)."

"While the relatively hawkish expectations for the Riksbank is a positive factor for the SEK, the above policy outlooks are already in the price. In addition, the SEK is already the best performing G10 currency in the year to date and in the half year to date. Since the end of 2023, EUR/SEK has embarked on a downtrend which marks a sea-change from the uptrend that had been in place since 2013. In our view, there is scope for further moderate softening in the value of EUR/SEK on a 12-month view to the 10.60 area."

"However, this will likely necessitate a solid improvement in Swedish economic activity data. Next week’s release of Swedish Q3 GDP data and September retail sales will be watched for signs of improving economic activity. Assuming the market continues to price for no more Riksbank rate cuts going forward, we favour selling EUR/SEK on rallies. Resistance will likely be provided by the 200-day sma at EUR/SEK11.08."