Research Team at Nomura, sees near-term upside risk for SEK against EUR in the near future, ahead of the ECB meeting on 10 March. Key Quotes “EUR/SEK has been trading in a narrow range between 9.45 and 9.50 recently, after it breached 9.60 temporarily last Thursday. The Riksbank delivered a further rate cut as we expected, but SEK weakness against EUR has been limited so far. We expect the Riksbank to maintain its dovish stance for the time being. However, Riksbank Governor Ingves yesterday repeated that it is important for SEK not to appreciate too rapidly, while stating the Bank is prepared to intervene in the FX market. At the same time, Governor Ingves said that last week’s decision reflects it is better to be ahead of curve. He also said it is reasonable for SEK to appreciate over time given high growth. These comments suggest to us that the Bank is unlikely to try to push EUR/SEK higher from its current level, while intervention is still possible if SEK appreciation accelerates. We estimate the trade-weighted index (KIX) is now trading around 111, about 1% weaker than the updated Riksbank forecast of Q1 average (109.8). The level is also its weakest since 3 December. Riksbank intervention is not imminent, in our view. About 2% appreciation of SEK from its current level in KIX terms is possible, as the Bank once allowed KIX to approach 108. The next scheduled Riksbank meeting is on 21 April. Although likelihood of an emergency meeting cannot be ruled out if SEK appreciation accelerates, the chances of a further rate cut are now likely smaller. The Bank suggests only a 3bp rate cut in its repo rate path (previously 6bp) and two board members dissented from the rate-cutting decision. The Riksbank’s meeting minutes are scheduled for release next Monday, which likely includes a negative assessment by the dissenters on a further rate cut. After the 15bp rate-cutting decision, the 2yr rate spread widened, but looking at previous reactions after a Riksbank rate cut, the widening of the rate spread is likely done. The rates market also prices a 2bp rate cut by early July, which also looks reasonable to us. Ahead of the ECB meeting on 10 March, market expectations for a more aggressive easing could rise, although the possibility of a 10bp rate cut is now well priced. Our economists expect the ECB to cut by 10bp and increase QE by EUR10bn per month, while more aggressive easing may be necessary now. Expectations for an ECB easing will be EUR/SEK negative via rate spreads, while positive risk sentiment will be moderately negative for EUR/SEK.” For more information, read our latest forex news.