So far this year, SEK has been the one of the strongest performing G10 currencies. According to our own flow data and SEK Views survey mainly foreign investors have bought the SEK, attracted by the Riksbank’s apparent surprisingly relaxed position on further SEK appreciation. With the central bank refocusing on a probable inflation undershoot at its latest policy meeting we now expect it to lower its policy rate in July. With markets currently discounting two-thirds of a full 25 bps cut (in H2 2013), a reduction should (only) have small negative consequences for SEK. Near-term external developments and domestic inflation are likely to encourage further monetary easing, especially with both China and Germany slowing. Conversely, in coming months, house prices and credit growth will argue for the reverse. We expect the Riksbank to be torn between these two opposing forces and the SEK with it, probably producing further near-term range trading. Trusting our own internal models concerning the global business cycle, worldwide growth will continue to improve in H2 2013 and risk appetite increase. While the weaker SEK will tempt many under-weighted companies and institutions to buy the currency once again, the recovery to 8.20 and below will now take longer.
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