UBS Revises Currency Targets for Norwegian and Swedish Krona

UBS Adjusts Currency Targets#

UBS, a global investment bank, has updated its currency targets for the Norwegian krone (NOK) and Swedish krona (SEK). This adjustment comes in response to changes in risk appetite and expectations regarding interest rates, particularly following recent geopolitical events.

Changes to EUR/NOK Target#

The bank has set its year-end target for EUR/NOK at 11.20. This is the same level the currency pair traded at before recent conflicts and in late March, prior to a shift in market sentiment towards a more optimistic outlook. UBS also anticipates a target of 10.75 for the end of the second quarter, predicting further declines in EUR/NOK if the current favorable conditions persist without interruption.

Updates on EUR/SEK Forecast#

For EUR/SEK, UBS has revised its end-Q2 target to 10.85, up from a previous estimate. This adjustment assumes that the current positive risk sentiment will continue in the near term. The currency pair increased to 10.84 from 10.67 at the end of February, partly due to a ceasefire announcement in Iran. UBS maintains a year-end target of 10.50, believing that an increase in SEK-denominated safe assets from higher fiscal issuance will support the krona.

Interest Rate Expectations#

UBS expects the Riksbank, Sweden's central bank, to keep interest rates unchanged in its upcoming meeting, aligning with market expectations of a slight tightening of 3 basis points. However, the bank believes that the market's anticipation of 64 basis points of rate hikes by year-end is overly optimistic, given ongoing low inflation, a recent VAT cut on food, and a relatively weak labor market.

Despite earlier expectations that EUR/SEK might rise due to anticipated rate hikes, UBS notes that such increases have not materialized.