Has SEK decoupled from ordinary drivers?
The SEK is generally regarded as a cyclical and risk sensitive currency. As such it should depreciate whenever risk appetite decreases (e.g. as measured by the SEB risk appetite index) or when growth is either slowing or expected to slow. However, as regards EUR/SEK this relation has not existed since the end of November last year. Though, concerning SEK vs. other G10 currencies the pattern is consistent. As also EUR/USD seem to have decoupled from risk as a driver, instead we conclude that ordinary SEK drivers still exist but the EUR has decoupled. Furthermore, a more thorough analysis reveals a current 1.3% SEK undervaluation vs. the G10 (EUR excluded) index.
RANGEBOUND EUR/NOK.
Last week we added a range-bet (3 months double-no-touch) in EUR/NOK to our recommendations on the notion that implied volatilities are too high and that Norges Bank will continue to verbally intervene on moves below 7.60. Short-term we see a risk for short-covering in EUR/NOK but the overall message is more range-trading. The calendar is also empty of events which promotes the range-bet. Note that the I44 (trade-weighted index) is now trading weaker vs Norges Bank own forecasts, something that we have highlighted as a distinct possibility as the flow outlook has been surprisingly weak.
WEAKER GBP?
The pound has benefited from a flight to currencies which have an independent and active central bank. Today’s CPI figures however reminded us that inflation is on a downward trajectory finally and that this will open up for further monetary policy stimulus next month. Sterling will be one of the weakest currencies going forward according to our Currency Strategy report released next week.