📝EUR/SEK Seen Decoupled From Rate Differentials: J.P. Morgan FX Strategy

There has been a myriad of factors explaining the EUR/ SEK overshoot to fair value over recent quarters; most striking is EUR/SEK􏰀s negative correlation with the EUR-SEK rate spread for the past six months. We had been flagging that a decoupling was likely from the start of the year given the growth implications of hikes in such a levered economy; higher US/ global yields have only increased vulnerabilities.

Labour market and reserves hedging data this week gave us renewed confi- dence in our krona short. We ultimately think the for- mer should outweigh the latter and maintain our bear- ish SEK view, but are mindful of the psychological cap that intervention can put on EUR/SEK and therefore revise down our 4Q EUR/SEK forecast accordingly from 12.20 to 12.00. - J.P. Morgan FX Strategy