ING: It's Up To The Market To Turn The Tide For The Krona

ING note that “the Riksbank may have set an imaginary line in the sand for EUR/SEK where it will decide to deploy some verbal intervention - potentially in the form of FX intervention threat. That could be the historical high at SEK11.68 or even higher around SEK12.00. It’s important, however, to note that Sweden does not have enough FX reserves to enter a sustainable FX intervention campaign in a volatile market environment, which is why we believe that a threat of FX intervention may not be followed by an actual deployment of market intervention.”

• “We are keeping our year-end forecast around SEK11.00 for EUR/SEK, primarily on the back of the narrative of a rotation from the dollar back into European currencies in the second half of the year due to a slowdown in the U.S. economy and aggressive Fed rate cuts. SEK has a high beta to European sentiment, plus it’s deeply undervalued and offers an attractive carry.”
• “But, with the Riksbank dissenters having essentially lifted its main tool (a hawkish rhetoric) to support the krona, it’s primarily going to be a market sentiment story in our view. And this is assuming that none of the domestic risks for SEK, which are higher than peers like NOK and the EUR, materialise. In other words, our bearish scenario for EUR/SEK faces considerable upside risks.”