In our most recent edition of Currency Strategy published last week our overall GBP rating was downgraded compared to the previous report due to weak fundamentals and an adverse technical outlook. Despite its inexpensive trade weighted valuation, we remain negative towards GBP. We now provide a more detailed examination of the currency’s fundamental outlook and the reasons behind our decision to downgrade our rating, suggesting further GBP weakness in the near term. From a long-term perspective the currency may have the potential to appreciate by between 10-15% in trade weighted terms. However with current weak fundamentals and the need to rebalance the economy towards external demand problems will not be resolved in the short term while yields are anticipated to remain low. It would therefore be premature to expect GBP to recover soon. Indeed, we prefer to take an opposed position and to sell the currency on any erratic move higher. Page 5
Are SEK highs past?
Over the coming months we expect EUR/SEK to move sideways with the risk of a break higher towards 9.15/20. Short-term triggers for renewed SEK strength are limited as the market remains long SEK and will need to consolidate overall positioning. Furthermore, we do not expect to receive new monetary policy signals from the Riksbank until its July meeting. Summer is also traditionally a weak period for the SEK. Still, we believe the undervalued SEK will benefit from Sweden’s strong fundamentals. In the long-term, we still forecast EUR/SEK to trade towards 8.50 in 2012. Page 3
Skandinaviska Enskilda Banken AB