UBS strategists reported that the Swedish krona has appreciated about 4% on a trade-weighted basis since November 2025, a move that has driven the EUR/SEK exchange rate down to test multi-year lows. While the bank acknowledges that both external and domestic conditions have supported the currency's advance, it warns the rally may be running ahead of fundamentals.
The bank's team expects a short-term rebound in EUR/SEK toward 10.80 before the prevailing downtrend resumes. UBS highlights that a combination of global factors - including a recovery in worldwide growth, a slightly looser overall financial environment and a rise in European defense spending - has helped boost new orders and activity readings in Sweden, underpinning the krona's strength.
At the same time, UBS notes the Riksbank has signalled concern about the krona's appreciation, particularly given inflation is undershooting the central bank's target. That commentary from the Riksbank is cited as an important domestic policy backdrop that could influence near-term exchange rate dynamics.
Positioning in the market has shifted markedly as well, according to the report, with investors increasingly net-long SEK. UBS points out that EUR/SEK is now trading below levels that are implied by rate differentials, a situation that suggests limited headroom for the krona to strengthen further in the immediate term despite the constructive macro picture.
Looking further ahead, UBS projects EUR/SEK to finish 2026 at 10.50 and characterises risks as skewed to the downside for the pair. Strategically, the bank recommends waiting for more favourable levels - closer to 10.80 - before initiating short positions, or alternatively selling the upside in EUR/SEK above 10.90.
In sum, UBS sees the krona as fundamentally supported by improved external demand and domestic activity data, but warns that stretched market positioning, policy concerns and valuations relative to rate differentials could produce a temporary euro rebound before any renewed depreciation of EUR/SEK.