An improving European Union economy supported by solid macroeconomic factors will see a gradual appreciation of the Swedish Krona (SEK) and Norwegian Krone (NOK) against the Euro through 2018. The two Nordic currencies will also extend their recent surge against the U.S.
The recent Riksbank (Swedish Central Bank) meeting kept interest rates unchanged at -0.5%. We anticipate that Sweden will face strong economic growth and will face resurgent inflation pressure stemming from an overheating housing market. As a result, the central bank will end its quantitative easing program this year and we expect the Riksbank to increase rates possibly in October followed by two additional rate rises in 2019.
While in Norway, we expect economic growth and inflation to moderately increase and unemployment to fall throughout 2018. We expect the Norwegian Central Bank to keep rates on hold until 2019. The traditional petro-currency behaviour of the NOK appears to be a thing of the past as there has been a recent disconnect between the price of oil and the value of the NOK. Recently, when oil fell by 2%, the NOK rallied and conversely slipped when oil rallied.
Overall, we expect all Scandinavian Central Banks to remain cautious and avoid a sharp currency rally and thus less likely to tighten monetary policy in the near-term than either the U.S. Federal Reserve or the European Central Bank.