UBS Raises EUR/SEK Forecast, Citing Low-Yield Headwinds for Swedish Krona

UBS has revised its forecasts for the euro against the Swedish krona, citing the krona's persistent low-yield status as a significant headwind despite Sweden's strong domestic fundamentals. The bank now projects the EUR/SEK pair will reach 11.00 by December, a notable increase from its previous target of 10.50.

Updated Forecasts Signal Krona Weakness

In a note to clients, UBS extended its bearish outlook on the krona into 2027. The bank raised its price targets for the EUR/SEK cross for the following periods:

• March 2027: to 10.90 (from 10.40)
• June 2027: to 10.70 (from 10.30)
• September 2027: a new forecast of 10.60

Analysts at the bank argue that a more supportive environment for the krona would require the market to fully price out further interest rate hikes from the U.S. Federal Reserve. Such a development would reduce pressure on lower-yielding currencies across the G10 space.

Diverging Central Bank Policy

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The forecast hinges on differing monetary policy paths between Europe and Sweden. UBS anticipates Sweden's Riksbank will keep its key interest rate on hold. In contrast, the bank expects the European Central Bank (ECB) is likely to deliver another rate hike in September, widening the interest rate differential in favor of the euro.

Norwegian Krone Outlook More Stable

By contrast, UBS maintained its existing forecasts for the Norwegian krone, keeping its EUR/NOK targets at 10.70, 10.60, and 10.50 for the quarter-ends through June 2027. The bank attributed the NOK's resilience to its attractive carry profile, a hawkish Norges Bank, and Norway's status as a net energy exporter.

UBS expects Norges Bank to hike rates one more time, matching the anticipated move from the ECB. This would likely keep the rate differential between the two economies stable, providing continued support for the Norwegian currency.