Rally in the Swedish krona is unlikely to last

What a difference a few months make; from being the worst performing G10 currency by some margin between the start of the year and late October, the Swedish krona has risen by about 3% against the euro since the Riksbank hinted that it would “most probably” raise the repo rate back to zero, at its meeting later this week. But while the krona could yet grind higher if the US/China trade war enters a less contentious phase, we suspect that a lot of the good news is now already priced in. Moreover, given our view that it will only be a matter of time before looser policy in Sweden comes back on the table, we think that the risks to the currency are skewed to the downside. We forecast it to fall to SEK 11 per euro by the end of next year, which would re-establish the krona as the G10 laggard.