UBS Raises EUR/SEK Targets Amid Low Swedish Krona Yields

Summary

UBS has raised its EUR/SEK target prices, citing the Swedish Krona's low yield despite strong domestic fundamentals. Conversely, UBS maintains its Norwegian Krona forecasts, supported by attractive yield spreads and a hawkish central bank.

Market Adjustments and Rationale

UBS now targets EUR/SEK at 11.00 by December (from 10.50). Further increases include March 2027 to 10.90 and June 2027 to 10.70. A new September 2027 forecast is 10.60. The adjustment reflects the SEK's persistent low-yield constraint.

Norwegian Krona forecasts remain unchanged, benefiting from its appealing G10 yield differential, the Norges Bank's hawkish stance, and Norway's position as an energy exporter.

Central Bank Policy and Currency Drivers

UBS expects the Riksbank to maintain rates, while the ECB may hike in September. A stronger SEK relies on the market fully pricing an end to Fed rate hikes. Both Norges Bank and the ECB are projected for one more hike, preserving their rate differential and NOK's yield advantage.

Outlook

The UBS outlook highlights divergent paths for Nordic currencies. SEK faces yield pressure, while NOK benefits from strong carry appeal and central bank support.

FAQ

Q: Why did UBS upgrade its EUR/SEK target?

A: UBS upgraded its EUR/SEK target due to the Swedish Krona's low yield characteristics, despite strong domestic fundamentals in Sweden.

Q: What is the outlook for the Norwegian Krona according to UBS?

A: UBS maintains its existing forecasts for the Norwegian Krona, citing its attractive yield advantage, hawkish Norges Bank policy, and status as a net energy exporter.

Q: What conditions would create a more favorable environment for the Swedish Krona?

A: A more favorable environment for the Swedish Krona would require the market to fully price in an end to Federal Reserve rate hikes, reducing pressure on low-yielding currencies.

Source: Investing.com