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BofA analysts think that the Swedish krona (SEK) may face downward pressure in the first half of the year due to the monetary stance of Sweden’s central bank, Riksbank. Despite a slight uptick in the SEK following a hawkish rate cut by the Riksbank, where rates were reduced by 25 basis points to 2.25%, the outlook remains cautious.
The Riksbank’s decision aligns with its previous guidance from December, indicating no further rate cuts are anticipated at this time. The central bank projects a stronger economic recovery in the coming months, with inflation expected to remain stable at its target. However, the language used by the Riksbank suggests a careful approach, with an openness to data-driven policy adjustments.
The BofA analysts believe that although the Riksbank has been somewhat hawkish, its overall cautious stance due to previous easing measures and concerns about the SEK is likely to result in additional rate cuts before summer and again towards the end of the year. This is partly influenced by BofA’s forecast of successive rate cuts by the European Central Bank (ECB) until September.
Market expectations are currently set at a 5 basis point cut by the Riksbank in March, with a total of 15 basis points by June and 18 basis points by the year’s end. In contrast, the ECB is expected to cut rates by nearly 50 basis points by March and approximately 90 basis points by year-end.
BofA suggests that the relative monetary policy stance of the Riksbank compared to the ECB presents downside risks to the SEK in the first half, but potential upside risks in the second half of the year.
Additionally, BofA cites trade uncertainty as the primary factor for its near-term bearish outlook on the SEK, which could influence the currency’s performance in the global market.
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