Today we publish our new Nordic Outlook, which contains all our latest macro projectionsincluding updated medium and long-term financial forecasts. SEB remains positive on USgrowth prospects. We expect the current fiscal policy headwind to ease considerably next yearonce private deleveraging is completed to be replaced by consumption as a more formidablegrowth driver. In our view, the Fed will begin tapering cautiously in Q1 2014. While this servesto limit additional EUR/USD upside (we still forecast a lower EUR/USD targeting 1.28 in June-14), Fed tapering in itself will have a worse effect on still overvalued commodity currencies.The deflationary bias currently attached to the already very poor European growth andemployment outlook will be met by the ECB launching its own non-sterilized quantitativeeasing program sometime during the spring of next year. Obviously, this represents anadditional obstacle to further euro appreciation above current levels. The Nordic outlookremains divided with Sweden and Norway set to return to trend growth (in Sweden evenabove) whilst recovery prospects look less impressive in Finland particularly. Fed tapering willbe less negative for Scandinavian currencies with the SEK expected to perform best after neartermweakness once the Riksbank delivers its final rate cut on Dec 17. We are less positiveconcerning the likelihood that the NOK will recover its previous strength as we showed in ourlatest NOK Views; Norway’s unit labour costs have risen far above those of its trading partners,which should ensure Norges Bank continues to guard against an over-strong NOK. We expect NOK/SEK to come close to parity over the next 1-2 years.
Read the full report: FX Ringside
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