UBS Forecasts SEK Weakness Amid Global Rate Pressures

UBS Switzerland AG has revised its outlook for the Swedish krona (SEK), projecting sustained weakness driven by elevated global interest rates and energy prices. In its latest forecasts, the bank anticipates the EUR/SEK exchange rate to weaken further, trading at 11.00 by December 2026, 10.90 in March 2027, 10.70 in June 2027, and 10.60 by September 2027. Technical levels remain critical, with resistance around 11.50 and key support at 11.00, underscoring the potential for volatility around these thresholds. The Swedish krona has faced persistent pressure from global monetary policy dynamics, including expectations of further Federal Reserve tightening and rising bond yields, which favor higher-yielding currencies like the euro over the SEK’s lower domestic rates. Energy price spikes, which contribute to inflationary pressures, also exacerbate the currency’s vulnerability. Despite these challenges, domestic fundamentals remain supportive, with the Riksbank’s September meeting signaling a cautiously hawkish stance—keeping the policy rate at 1.75% while noting inflation would likely stay close to its 2% target excluding fiscal measures. However, UBS argues that further tightening by the Riksbank is unlikely until year-end, citing contained underlying inflation and labor market slack. The European Central Bank is expected to raise rates again in December, adding to the pressure on the krona. A more favorable backdrop for the SEK would require the Federal Reserve to fully price out its rate increases, reducing the relative appeal of lower-yielding currencies like the SEK. The Swedish central bank’s communication shift in September, though anticipated, failed to spark significant market reaction, reflecting limited expectations of additional policy action.