Worst-performing Swedish krona seen gaining in turnaround

Bloomberg

The krona is the worst-performing major currency this year. That may be about to change.
Sweden’s krona should recover from this month’s eight-year low of 10.35 per euro as factors that have weighed, such as weaker-than-forecast inflation, are either already priced in or will improve, according to SEB AB. The bank sees it appreciating to 9.80 per euro by the end of the year, while Nordea AB — which along with SEB make up the two largest traders of the krona — sees a potential strengthening toward 10.05 over the next month.
The krona has declined more than 4.5 percent against the euro this year in a move that accelerated after core inflation data surprised to the downside in January. The trend was then given further impetus after the outlook for Riksbank’s first interest-rate hike in seven years was thrown in doubt when most of the central bank’s policy makers in February discussed delaying it.
“The krona trades at historically stretched levels,” said Carl Hammer, head of macro and currency research at SEB in Stockholm. “Swedish core inflation numbers should ensure a stabilisation and ultimately a reversal of the current uptrend in euro-krona.”
SEB expects data on Thursday to show that the Riksbank’s targeted measure of inflation quickened to 2.1 percent in March from 1.7 percent in February, while Nordea
sees it matching the central bank’s 2 percent target.
Credit Agricole SA expects that the recent slowdown in Swedish inflation is over and that some negatives are already in the price of the currency.
“With that in mind, a positive surprise will likely have a disproportionately greater impact on the krona” than if price-growth data disappoints, said Valentin Marinov, head of Group-of-10 foreign-exchange research at the French bank, which has a year-end euro-krona target of 9.60.
Sweden’s currency was little changed against the euro at 10.2970 in Stockholm on Tuesday.
The decline in the krona versus the common currency in recent months isn’t justified by fundamentals and leaves it appearing undervalued, according to BNP Paribas currency strategists Natalie Rickard and Alexander Jekov, who see the krona at 9.60 per euro by year-end.