UBS has recalibrated its exchange-rate targets for the Norwegian krone and the Swedish krona, pointing to shifts in risk appetite and revised rate expectations following recent geopolitical developments.
For EUR/NOK, the bank set a year-end target of 11.20 - a level the cross traded at before the conflict and in late March, before risk sentiment moved to a more bullish stance. UBS also published an end-Q2 target of 10.75, indicating it expects the euro to move lower against the krone - that is, further downside in EUR/NOK - if the pro-carry environment continues without disruption.
On EUR/SEK, UBS has adjusted its end-Q2 target to 10.85 from its earlier forecast, on the assumption that risk sentiment will remain supportive in the near term. The pair has already risen to 10.84 from 10.67 at the end of February, a move that was initially supported by the announcement of a ceasefire in Iran. Despite the near-term adjustment, UBS maintained its year-end EUR/SEK target at 10.50. The bank said this year-end view is underpinned by its expectation that a growing supply of SEK-denominated safe assets - coming from greater fiscal issuance - can help support the krona.
UBS also weighed in on Swedish monetary policy ahead of the Riksbank decision. The bank expects the Riksbank to hold rates unchanged at its meeting tomorrow, consistent with market pricing that implies about 3 basis points of tightening. UBS cautioned that market pricing for 64 basis points of Riksbank hikes by year-end appears misplaced in its view, citing persistent inflation that remains below target, an additional mechanical disinflationary impulse from a VAT cut on food, and a relatively soft labour market.
Finally, UBS noted that the anticipated upside in EUR/SEK has not materialised, despite earlier April expectations that near-term risks were skewed to the upside because markets had priced in rate hikes that UBS did not expect to occur. The bank's revisions therefore reflect a combination of changing risk sentiment, rate path expectations and supply considerations for SEK assets.