USD/SEK is in a big uptrend but recently we saw a correction and we view the pullback as a buy. This view is based upon the USD's yield advantage which is likely to widen in the coming months and also we could see the USD gain an additional boost from safe-haven flows.

The Interest Rate Outlook to Undermine the SEK

   The Riksbank left its key policy rate steady at 4% on March 27th 2024, in line with market forecasts, but said it is likely that the borrowing cost can be cut in May or June if inflation prospects remain favourable and data this month has shown a fall in inflation and also a cooling labour market.

“Riksbank Deputy Governor Per Jansson says he’s “significantly more confident” in the inflation outlook given the improvement seen in forecast since the latter part of last year” (BLOOMBERG)

CPIF inflation came out at 2.2% y/y in March, down from 2.5% in February and well below the Riksbank’s forecasts. The labour market is also deteriorating. Indicators including new vacancies and personal risk of unemployment indicate that the labour market will continue to weaken in the months ahead. Monthly figures are very volatile but the March numbers are likely to cement a rate cut in May.

On the other side of the pair the US is still suffering from stubborn inflation and we dont see a rate cut coming until September at the earliest with the possibility the Fed could remain on hold for the remainder of the year.

USD Yield Advantage and Safe Haven Flows = A Stronger USD...

The SEK recently mounted a rally on the USD but we expect this pullback to end with another move up in USD/SEK – The Riksbank will cut before the FED, The USD has the yield advantage now and going forward it will widen.

The SEK is a high BETA currency which is heavily correlated with risk sentiment and recently, its been helped by risk on in the markets but we expect this to change. We have had firm stock markets and a cooling of geopolitical risks but we dont expect this to last and a move away from risk to occur. If this happens will support the USD but we expect it to firm anyway as we noted earlier on the USD's yield advantage.

Technical Analysis

Our view of the key levels of support and resistance to look out for below.