The Swedish Krona has been a favourite within the European FX complex. But while macro fundamentals remain supportive, developments at the macro-prudential regulation level warrant watching as a risk factor. SEK has been a relative winner among European G10 currencies in 2013. This reflects Sweden’s relatively robust economy, trade and current account surpluses and its banking system’s easy access to foreign funding. Riksbank concerns about house price gains and household debt levels have added to market confidence in SEK outperformance, especially at a time when rival European currencies are under pressure from easier monetary policy and talk of global “Currency Wars” abounds. In this note we consider the risks to the SEK uptrend. We highlight one risk that gets relatively little attention: a potential upgrade in residential mortgage risk weightings that spurs easier monetary policy from the Riksbank.
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UBS