UBS raises EUR/SEK price target on low-yielding krona concerns
UBS has increased its price targets for the EUR/SEK currency pair, citing the Swedish krona's low-yielding status as a primary concern despite Sweden's stronger domestic economic fundamentals.
Intelligence analysis by Gemini 2.5 Flash
UBS has revised its forecasts for the Euro-Swedish Krona exchange rate upwards, predicting a weaker krona against the euro through September 2027. This adjustment is primarily driven by the krona's low yield, which makes it less attractive to investors, contrasting with the more robust outlook for the Norwegian Krone.
Imagine currencies are like scores in a game, and UBS is a coach predicting how well each team will do. They think the Swedish Krona team won't score as many points because it's not offering as many 'rewards' (like interest) as other teams. So, they expect the Euro team to win more easily against the Krona. But for the Norwegian Krone team, they think it's strong because Norway sells a lot of oil and its central bank is playing a smart game, so its score will stay high.
Analysis
UBS's decision to raise its EUR/SEK price targets reflects a nuanced view of the Nordic currencies, highlighting the persistent challenges faced by the Swedish krona. Despite Sweden's underlying economic strengths, the krona's low-yielding nature continues to be a significant drag, limiting its appeal to investors seeking higher returns. This outlook suggests that the currency's valuation is not solely tied to domestic economic performance but also to global monetary policy differentials and investor sentiment towards carry trades.
EUR/SEK 11.00
UBS has significantly adjusted its short-term and long-term forecasts for the EUR/SEK pair, with the December target now set at 11.00, a notable increase from the previous 10.50. This upward revision indicates a stronger euro relative to the krona than previously anticipated. The bank's projections extend through September 2027, with targets gradually decreasing but still remaining elevated compared to earlier expectations, suggesting a sustained period of krona weakness.
The revised targets underscore the bank's conviction that the factors contributing to the krona's low-yielding status will persist. This includes the expectation that the Riksbank will maintain its current monetary policy stance, while the European Central Bank is likely to implement further rate hikes. Such a divergence in monetary policy would widen the interest rate differential, making the euro more attractive and putting continued downward pressure on the krona.
Riksbank
UBS anticipates that the Riksbank, Sweden's central bank, will likely remain on hold regarding interest rate adjustments. This cautious approach by the Riksbank is a key factor contributing to the krona's low-yielding profile. In contrast, the European Central Bank is expected to hike rates in September, creating a yield disadvantage for the krona.
For the krona to find more supportive ground, UBS suggests that a significant shift in global monetary policy, specifically the Federal Reserve's hiking cycle being fully priced out, would be necessary. Such a development would alleviate pressure on lower-yielding currencies globally, potentially allowing the krona to strengthen. However, without this external catalyst, the Riksbank's current stance is seen as insufficient to bolster the currency.
Norwegian Krone
In stark contrast to its outlook for the Swedish krona, UBS has maintained its existing forecasts for the Norwegian krone, projecting stability through June 2027 and adding a September 2027 forecast of 10.50. The krone benefits from several strong tailwinds, including one of the most attractive carry profiles among G10 currencies. This means investors earn a higher return by holding the krone compared to other major currencies.
Furthermore, the Norges Bank, Norway's central bank, is expected to remain hawkish, likely implementing one more rate hike. This proactive monetary policy, combined with Norway's significant position as a net energy exporter, provides robust support for the krone. The country's energy exports generate substantial foreign currency inflows, bolstering the krone's value and differentiating its performance from its Swedish counterpart.
Key points
- UBS raised its EUR/SEK price targets, forecasting a weaker Swedish krona against the euro.
- The bank now expects EUR/SEK at 11.00 for December, up from its previous target of 10.50.
- The primary reason cited for the krona's weakness is its low-yielding status, despite stronger domestic fundamentals in Sweden.
- UBS anticipates the Riksbank will remain on hold, while the European Central Bank is likely to hike rates in September.
- The Norwegian krone's forecasts were maintained, benefiting from an attractive carry profile, a hawkish Norges Bank, and Norway's status as a net energy exporter.
The Norwegian Krone's strong carry profile, hawkish Norges Bank, and Norway's status as a net energy exporter could continue to provide significant support, making it an attractive currency for investors. This stability could foster economic confidence within Norway and support its trade balance.
The Swedish krona's persistent low-yielding status, coupled with expected rate hikes from the European Central Bank while the Riksbank remains on hold, could lead to further depreciation against the euro. This could make imports more expensive for Sweden and potentially impact its economic stability.
Market signals
- OIL Norway's position as a net energy exporter is cited as a factor supporting the Norwegian Krone, indirectly indicating strength or stability in the energy commodity market.
AI-generated analysis of potential market relevance. Not financial advice.