Goldman: SEK Is The New Sterling, Go Long EUR/SEK

Late on Friday Goldman Sachs wrote “through much of 2022, we called for GBP to underperform because we thought the BoE’s desire to take a more balanced approach to policy (guarding against high inflation while still trying to cushion consumers from an income squeeze) should put pressure on the currency. Now, with lower gas prices partially easing those concerns, we think investors should turn their attention to Sweden.”

• “We have long argued that the combination of relatively less anchored inflation expectations, high indebtedness and a vulnerable housing market puts the Riksbank in a tough spot.”
• “We expect that to translate into more inflation tolerance and “reluctant” hikes, including a more cautious tone at the meeting next week. This should come into even sharper focus now as robust activity data raise the possibility that the Fed and ECB could need to extend the hiking cycle further.”
• “We recommend investors go long EUR/SEK with a target of SEK12.00 and a stop at SEK11.00. Although the currency has already weakened substantially, we think there is still room to run. Correlation trades could also be an attractive way to position for the underperformance we expect.”