Norway’s central bank expected to hold rates as Swedish cut looms

Investing.com -- Norges Bank is expected to maintain its current interest rate levels at its upcoming meeting, as Norway’s economy shows resilience despite high rates. Following a hawkish pivot at its last meeting, Norway’s central bank will likely delay its first rate cut until later this year, according to Citi analysts.

The Swedish Riksbank, in contrast, is expected to cut rates by 25 basis points, responding to softening economic data. This comes after the Swedish central bank had previously indicated in March that its rate-cutting cycle was complete. Nordic Economics forecasts another 25 basis point cut after summer, suggesting this week’s anticipated reduction won’t be the last.

The Swedish krona (SEK) faces potential weakness from the expected rate cut, as rate differentials may move against it. Markets are currently pricing in a small risk of deeper cuts beyond this week’s meeting, and any guidance acknowledging further cuts could put additional pressure on the currency.

Sweden has recently seen a significant unwinding of its North American equity holdings, suggesting that reallocation and hedge ratio adjustments—previously supporting the krona—may be largely complete. This development removes one of the two major tailwinds that had been supporting SEK this year.

European defense stocks, another previous support for the krona, have struggled in recent weeks despite major escalations in conflicts in Ukraine and the Middle East. Next (LON:NXT) week’s Paris Airshow could provide a positive catalyst through major deals and announcements, but continued weakness in EU defense names could indicate an exhaustion point that may further pressure the Swedish currency.

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