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The Swedish krona is held back by high energy prices and a 1.75% policy rate, but a November rate hike and short-covering could shift the narrative.
The Swedish krona remains weak against the pound, with high energy prices and low Swedish interest rates keeping investors away from the currency.
The Pound to Swedish Krona rate trades at 13.24, up 0.29% on the day and near the early-October high of 13.33, having climbed from 12.10 in February.
The pair is consolidating on its 21-day moving average at 13.21, a gauge of the short-term trend, while the 100-day average rises through 12.96.
Our call last month, that the 21-day average would keep the uptrend intact, has held, and we expect the pair to stay above 13.18, the floor of this month's range.
A break above 13.33 would open fresh highs, while a daily close below the 21-day average would signal a turn, with the 100-day average at 12.96 the deeper support.
Above: Pound-krona has held its uptrend since February, with the 100-day moving average rising beneath.
The oil prices that lift Norway's krone work against Sweden's, leaving Scandinavia's two currencies on opposite paths.
"The external environment (oil, bonds) remains challenging for SEK, and the prospect of Riksbank hikes isn't enough to lift the currency by itself," says ING in a recent update.
Swedbank this week raised its forecast for Norway's krone against the krona, citing Norwegian carry and the high oil price.
The Riksbank Lags the Bank of England
The Riksbank held at 1.75% in September, naming a weaker krona as one reason it expects inflation to rise, and announces its next decision on 4 November.
That leaves Swedish rates 200 basis points below the Bank of England's 3.75%, a gap that makes the krona a cheap currency to borrow against the pound.
Investment bank analysts expect a Riksbank hike on 4 November, and markets have priced it in advance.
Swedbank says the roughly 100 basis points of hikes priced over the coming year look excessive, given Swedish households' short-term mortgage fixing, which limits the room for rate-driven krona gains.
SEB sees downside risks to the Riksbank's labour market forecast, and says rate hikes pose clear downside risks to its own 2027 growth outlook.
The Bank of England is set to keep pace, with unemployment falling to 4.7% on Tuesday and firming the case for a hike on 5 November.
Euro Gains Could Lift the Krona
Turning to the counter-case, the krona is gaining ground against a euro weighed down by France's fiscal crisis.
"In view of the combination of a sound fiscal stance, a resilient economy and the prospect of a November rate rise from the Riksbank, we see scope for the SEK to win back some ground vs. the EUR," says Rabobank in a recent update.
MUFG closed its long USD/SEK trade last week, saying "the SEK has scope to rebound further following its sharp sell-off last month."
SEB says investors hold large short positions in the krona, leaving room for a sharp short-covering rally.
The pound has absorbed those euro gains so far, rising to a 16-month high against the euro last week.
Pound-krona turns lower if the krona's gains against the euro outpace the pound's.
The Riksbank decides on 4 November and the Bank of England the following day, and pound-krona held above 13.18 into those meetings keeps the uptrend on course for a break of 13.33.
Daniella Arcadipane, Senior Currency Specialist at Indigo
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