The USD recently had a correction on the SEK but that now looks to have ended and we are looking for a far stronger USD interest rate differentials going forward are in favor of the USD and likely to widen which is USD supportive.

Interest Rate Differentials 

The USD already holds a yield advantage over the SEK with rates at 3.75% and US funds rate is at 5.25%-5.50%. At the last Riksbank policy meeting, the central bank noted the possibility of three, rather than two, more rate cuts in the second half of this year. On the other side of the pair, the market is looking for up to three rate cuts from the Fed which we think is unlikely.

The Swedish Central Bank is out and out dovish: “Sweden’s more interest rate-sensitive economy is coming under more noticeable pressure, which means the Riksbank can more confidently commit to further easing...Swedish officials are also making a big thing of the fact that inflation expectations are much lower, which should feed into more modest wage settlements at the next round of talks in early 2025.” (ING THINK)

The yield advantage is with the USD and is likely to widen as move into the end of the year.

The SEK is heavily correlated with the Euro and Sweden's economy is heavily exposed to the zone the market is bullish fo an economic recovery in the zone but there is no evidence of this at all and weaker economic growth in the zone will impact Sweden.

The SEK is a high BETA currency and heavily correlated with risk on and risk off – we have had big risk on in the market which we expect to end which will further support the USD.

Technical Analysis

On the chart below we outline in our view the key levels of support and resistance to look out for.