UBS maintains EUR/SEK, EUR/NOK forecasts

UBS has maintained its EUR/SEK forecasts at 10.75 for end-2025 and 10.60 for end-2026, driven by Sweden's looser fiscal stance, including SEK 80 billion in additional spending and tax cuts for 2026, which supports the krona's structural strength despite its decoupling from interest rate differentials. While structurally positive on SEK, UBS acknowledges risks from this decoupling, such as a dovish Riksbank or deteriorating economic activity. Concurrently, the bank held its EUR/NOK forecasts at 11.75 for both periods, noting attractive carry but a lack of structural bullish arguments.

Analysis

UBS maintains a structurally positive outlook on the Swedish Krona (SEK), holding its EUR/SEK forecasts at 10.75 for end-2025 and 10.60 for end-2026. The bank's conviction is anchored in Sweden's looser fiscal stance, highlighted by a forthcoming announcement of SEK 80 billion (approximately 1.2% of GDP) in additional spending and tax cuts for 2026. This fiscal stimulus is seen as the primary driver for the krona's strength, causing a notable decoupling of the currency from its traditional correlation with interest rate differentials. While the market has reportedly embraced this narrative, UBS remains cautious, acknowledging that this very decoupling presents a risk. A sudden upward move in EUR/SEK could be triggered by catalysts such as a significantly more dovish Riksbank or a marked deterioration in economic activity. In contrast, the bank's view on the Norwegian Krone (NOK) is more neutral, with the EUR/NOK forecast held at 11.75 for both 2025 and 2026. This reflects a position that is only modestly bullish against the forwards, supported by attractive carry but lacking a compelling structural argument for a significant correction toward fair value.

Key Decisions for Investors

• Investors could consider establishing or maintaining long SEK positions against the EUR, aligning with UBS's structurally positive view driven by expansionary fiscal policy.
• It is critical to monitor for potential risk catalysts that could reverse SEK strength, specifically any dovish shifts in Riksbank guidance or a material downturn in Swedish economic data.
• For the Norwegian Krone, a carry trade strategy may be more appropriate than a directional bet on appreciation, given the attractive carry but lack of a strong structural narrative for significant gains.
• Differentiate strategies between the two Scandinavian currencies, recognizing that the bullish case for SEK is based on fundamental fiscal drivers, whereas the case for NOK is primarily yield-based.