The UBS analyst team sees EUR/SEK in the 9.20-9.60 range over the next six months but to eventually fall below 9.00 over a 12-month time horizon, following Riksbank decision to cut its policy rate from -0.35% to -0.50%. Key Quotes “Thursday the Riksbank decided to cut its policy rate from -0.35% to -0.50%, which sparked a temporary jump in the EUR/SEK rate to 9.60. Markets were surprised by the size of the cut. The 2% weakening of the trade-weighted SEK index since December could have been enough to alleviate Riksbank concerns about the SEK being too strong.” “But its expectation of further easing on the part of the European Central Bank (ECB) in March probably persuaded the Riksbank to err on the safe side.” “Its commitment to an easy monetary policy stance is now clear, which should keep EUR/SEK in the 9.20-9.60 range over the next six months.” “However, the more important question for the longer term concerns the policy's credibility. At some point markets may start to doubt Sweden's ability and willingness to keep its currency so weak, when its economy is actually outperforming most peers in economic growth and inflation terms.” “Recent market turmoil may have reduced demand for the SEK, which is a rather small and illiquid currency. This could have fooled the Riksbank into believing that it's easy to keep the SEK weak. We expect global risk sentiment to stabilize and recover in the coming months, so demand for the cyclical SEK should rise again. Currency intervention could then end up being the Riksbank's Waterloo in this currency war. We expect EUR/SEK to eventually fall below 9.00 over a 12-month time horizon.” For more information, read our latest forex news.