Swedish Krona: Riksbank hikes support SEK – Societe Generale
Societe Generale notes the Riksbank’s 25bp hike to 2.0% and guidance for further tightening, keeping policy accommodative versus neutral. Updated projections imply more hikes through 2028, narrowing the differential with the ECB.
The Swedish Riksbank recently raised its support rate for the Swedish Krona (SEK) to 2.0% from 1.75%, according to Societe Generale. This decision, which was telegraphed at the September meeting, comes as part of a broader tightening trend, keeping the policy rate still accommodative relative to its neutral range. The Riksbank's guidance also points to further rate hikes through 2028, narrowing the gap between the central bank's policy and that of the European Central Bank (ECB).
Despite the negative carry on the hike, the SEK has outperformed, with the EUR/SEK pair retreating to its 200-day moving average after peaking in September. Should the support level break, the pair may experience further downside risks. In the larger G10 framework, the Riksbank's rate increase mirrors actions taken by the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) in recent weeks.
The Riksbank's decision was based on the assumption that inflation and economic activity forecasts remain positive, leading to a likely continuation of rate hikes in the coming year. On the technical front, EUR/SEK has breached a multi-month ascending trend line and failed to hold the neckline of its previous inverse head and shoulders pattern, indicating a loss of upward momentum.
The currency pair is now trading at the 200-day moving average and is testing the August trough at 10.91/10.87, which could act as a potential support zone. A short-term bounce is possible, but holding above 10.91/10.87 may prove challenging, posing risks for further declines.
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