Key Moments
- Commerzbank’s Antje Praefcke underscores Riksbank member Per Jansson’s view that weaker demand, higher rates, and easing inflation give Sweden room to wait despite the Iran-related energy shock.
- Praefcke considers the potential downside for SEK limited if the Iran conflict is resolved and energy prices fall, as markets have not aggressively priced in rate hikes.
- The krona is expected to retain recent gains and move slightly higher against the euro over the course of the year, supported by a resilient economy and relatively high real interest rates.
Riksbank Policy Backdrop and Energy Shock
Commerzbank analyst Antje Praefcke points to comments from Riksbank Executive Board member Per Jansson, who argues that a combination of weaker demand, elevated policy rates, and softer inflation gives Sweden the flexibility to maintain a wait-and-see stance even in the face of an Iran-related energy shock.
According to this assessment, the current macroeconomic setup in Sweden reduces the urgency for additional monetary tightening, despite heightened geopolitical and commodity market risks associated with Iran.
Market Pricing and SEK Correction Risk
Praefcke notes that the Swedish krona (SEK) has only limited scope for a negative repricing if tensions around Iran ease and a solution to the conflict emerges.
“Certainly, some correction in the SEK is possible should a solution be found to the Iran conflict. Nevertheless, Sweden stands out from many other countries: falling and very low inflation rates in recent months have not led to a significant rise in expectations of interest rate hikes – the market only sees a possibility, starting in the fall, that the Riksbank might raise the policy rate before the end of the year.”
She emphasizes that, based on current market expectations, there is little that would need to be unwound in terms of rate hike pricing if energy prices were to decline in connection with an Iran conflict resolution.
“Accordingly, I see little need for a correction and thus little downside potential for the krona in the event of a resolution to the Iran conflict (with falling energy prices); after all, there is almost nothing to price out.”
SEK Outlook Versus the Euro
Praefcke highlights Sweden’s economic performance and interest rate environment as supportive factors for the krona going forward.
“The economy remains relatively resilient, and the comparatively high real interest rate should also support the krona. While the krona has likely already realized most of its appreciation potential, it should continue to defend these gains against the euro and trend slightly stronger over the course of the year.”
SEK Drivers at a Glance
| Factor | Commerzbank Assessment |
|---|---|
| Demand | Weaker demand supports a cautious Riksbank stance. |
| Policy rates | Higher policy rates contribute to relatively high real yields. |
| Inflation | Falling and very low recent inflation reduces pressure for further hikes. |
| Market pricing | Only a possibility of a rate hike from the fall, with limited expectations overall. |
| Geopolitics (Iran) | Energy shock acknowledged, but SEK downside seen as limited on conflict resolution. |
| SEK vs EUR | Krona expected to hold recent gains and drift slightly stronger against the euro over the year. |
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