FX Daily: Hawkish wave to hit Scandinavia today
The outlook for Scandinavia's monetary policy takes a hawkish turn as the Riksbank is expected to signal an imminent rate hike, potentially aligning with the desk's anticipation of a November adjustment. Per the full note from ING, this hawkish hold reflects a broader trend amidst a strengthening dollar and rising oil prices, which have shifted market sentiment toward tighter monetary conditions across the region. Current positioning indicates that the NOK has greater upside potential than the SEK due to diverging expectations regarding the Norges Bank, creating a tactical opportunity in the cross-rates. Additionally, the backdrop of a depreciated dollar rally appears stretched, suggesting potential volatility in the USD/JPY pair should Japanese authorities intervene in exchange markets.
What the desk is arguing
The desk contends that the Riksbank's anticipated hawkish stance will bolster the SEK in the near term. This expectation comes as signs of economic strength are evident, with the USD rally looking oversold against fundamental reports. According to the source note, the Riksbank's rate hike, projected for next month, coupled with an anticipated rate decision from Norway, could lead to significant shifts in regional currencies.
Key indicators supporting this view include the recent rise in DXY above 101.0, bolstered by strong US PMIs, while the potential for intervention from the Bank of Japan at levels over 160.0 in USD/JPY creates a complex backdrop for dollar positioning.
Where it sits in our coverage
For the EUR/USD pair, our current consensus target stands at 1.1684, with median forecasts ranging from 1.1200 to 1.2000 by December 2026, according to firms like socgen (1.1400), rbc (1.2000), and morganstanley (1.2150).
This desk's view of a hawkish adjustment in Scandinavian currencies diverges from current forecasts, particularly with expectations for the SEK to strengthen, as it lies towards the upper range of the spread among forecasts.
How other firms see it
Several firms, including ing, socgen, and rbc, align with the Riksbank's hawkish signal, reflecting a consensus towards anticipated rate hikes. However, mizuho and goldman provide contrasting forecasts that position the SEK and NOK less aggressively against major currencies.
The anticipated Riksbank rate path aligns with other central banks' tightening measures, including movements from the Fed and potential shifts in USD/JPY based on Japanese monetary policy, which remains a key market watchpoint.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Expect the Riksbank to signal a rate hike in November amid a hawkish shift in regional monetary policy.
- 02NOK offers greater upside potential compared to SEK due to market divergences regarding Norges Bank's decisions.
- 03The USD rally is showing signs of strain, particularly with rapid movements in USD/JPY prompting potential intervention.
- 04Market volatility may increase as traders anticipate reactions from both Scandinavian and central bank authorities.
Market implications
Monitoring USD/JPY is crucial, especially with the potential for intervention around the 160.0 mark. Additionally, traders should pay attention to any shifts in Riksbank communications as they could signal further SEK appreciation in response to regional inflation pressures.
Risks to this view
The primary risk to this outlook stems from unexpected dovish guidance from Riksbank or Norges Bank, which may prompt a reversal in bullish SEK and NOK sentiment. Additionally, a resurgence of positive economic data from the US could bolster the dollar further, leading to short-term volatility in EUR/USD and USD/JPY.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bullish | 1.1800 |
Deutsche Bank | Neutral | 1.1668 |
BNP Paribas | Bearish | 1.1500 |
Articles FX Daily: Hawkish wave to hit Scandinavia today Published 07:50 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download We expect the Riksbank to deliver a hawkish hold, hinting at an imminent rate hike, which we expect in November. In Norway, we see a rate hike in a close decision. NOK faces greater upside than SEK as markets and consensus are more split regarding Norges Bank.
Meanwhile, the dollar rally has accelerated, and the move is starting to look stretched Francesco Pesole and Frantisek Taborsky We expect the Riksbank to deliver a hawkish hold today USD: Rally starting to look stretched The dollar jumped yesterday, with DXY breaking above 101.0. Very strong US PMIs, higher oil prices and soft risk sentiment have all contributed to the bullish narrative, although the move is starting to look stretched relative to fundamentals. We are cautious in calling for a bottom in the dollar just yet because any upside surprise in upcoming US data releases can easily prompt markets to fully price in an October Fed hike and prop up short-term rates even more.
But if this risk doesn’t materialise, we expect a correction in DXY in the coming weeks, with a return to the 100-100.5 area. USD/JPY remains another source of potential downside risk for the dollar. The rapid rally in the pair may draw Japanese authorities to intervene – remember last week’s reported rate check – and that could easily spill over into a weaker USD across the board.
Without any intervention, a return to above 160.0 levels looks inevitable after the dovish surprise by the Bank of Japan last week. Today, focus will be on the summit between President Trump and Chinese leader Xi Jinping. There is a history of Trump striking a more conciliatory tone in face-to-face events, and Scott Bessent has already announced an extension of the trade truce by two months.
We’re not sure the dollar will respond much to positive US-China headlines at this stage, with any positive effect probably more visible in AUD and NZD. Those could emerge more prominently as proxies for CNY after the People's Bank of China set a weaker fixing for the yuan for the second consecutive day. Fedspeak also remains firmly on investors’ radar, with Williams, Barkin, Hammack and Paulson all due to deliver remarks today.
The data calendar is quiet. Francesco Pesole EUR: Downside risks start to shrink The break below 1.140 in EUR/USD has sent the pair into stretched undervaluation territory according to our short-term fair value model. That’s because short-term rate differentials actually moved in favour of the euro, offsetting the negative impact on fair value from lower equities and oil.
Sources & References
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