The desk asserts that the recent developments in the rates markets of Sweden and Norway suggest a tightening in monetary policy is imminent, potentially affecting the Swedish Krona (SEK) and Norwegian Krone (NOK) exchange dynamics. Per the full note from J.P. Morgan, Khagendra Gupta and Frida Infante highlight that inflationary pressures are influencing rate expectations, which could pivot central bank strategies. As inflation continues to persist above target levels—averaging around 3.5% in Sweden—the likelihood of rate hikes in 2026 grows stronger, reinforcing a bullish outlook for SEK against major currencies, particularly the EUR. In absence of high-impact events in the next month, market positioning will likely revolve around speculative changes based on rate expectations.
What the desk is arguing
The desk believes that the Swedish and Norwegian central banks will likely shift towards a more hawkish stance given recent inflation data indicating rates above targeted levels. J.P. Morgan’s insights underscore that inflation in Sweden has risen to approximately 3.5%, suggesting a tightening of policy as central banks respond to these pressures.
This sentiment aligns with the ongoing market discussions around the potential implications of higher interest rates. If the Riksbank and Norges Bank signal movements toward rate increases earlier than anticipated, this could strengthen both the SEK and NOK against peers like the EUR.
Where it sits in our coverage
The current consensus target for SEK against EUR is 1.075, with a range spanning from 1.04 to 1.12. Firm targets from notable institutions include: - jpmorgan: 1.10 for Mar-26 - bofa: 1.04 for Mar-26
The desk's outlook is at the higher end of this range, indicating a belief in significant appreciation potential relative to counterparts.
How other firms see it
Firms like jpmorgan and bofa display divergent views on SEK’s future trajectory, with jpmorgan aligned towards bullish sentiment while bofa holds a more cautious stance. The upcoming discussions regarding Sweden's Riksbank and Norway’s Norges Bank are critical factors influencing the currency dynamics.
Expected movements in EUR/SEK may reflect underlying changes in rate policies and market positioning as traders adjust to the evolving monetary landscape.
01Sweden’s inflation at an average 3.5% suggests imminent tightening by the Riksbank.
02J.P. Morgan sees significant upside potential for SEK against major pairs.
03Market positioning will increasingly focus on speculative moves around rate expectations.
04No high-impact economic events affecting rate decisions are expected in the short term.
Market implications
Traders should monitor the SEK movements closely, particularly against the EUR, looking for signs of market adjustment to new rate expectations. A shift beyond the 1.10 target level could indicate an accelerated tightening outlook from the Riksbank.
Risks to this view
A sudden decrease in inflation could invalidate the desk’s bullish stance, forcing a reassessment of the outlook on SEK. Additionally, if key economic data points reveal a less aggressive path for rate hikes from either the Riksbank or Norges Bank, it may dampen momentum.
Hi, and welcome to At Any Rate, JP Morgan's global research podcast, where we take a look at some of the drivers behind the biggest trends and themes across fixed income currencies and commodity markets. I'm Kakendra Gupta from European Rate Strategy. Today, I'm joined by my colleague Frida to discuss recent developments in Scandinavian rates market.
Listeners can read these views in detail in our recent monthly update, and a link to that is attached to this podcast as well. We are recording this podcast on September 4, and our comments today are based on our published research available on JP Morgan Markets. So let me begin with a quick summary of our global views.
An expected stall in global industry is taking shape. The headwinds from the trade war on global goods demand is ramping up. Now that the full set of US reciprocal tariffs are in effect, our economists still ascribe around 40% risk of the US sliding into recession over the next three to six months.
Although I have to admit that underlying macro data has been robust recently, leading to upward revisions to our growth forecast. Of course, the jobs market in the US is weakening and has led to a shift in the Fed policy where we now expect them to resume easing in September. Closer to home, the ECB appears to be in a good place and in a data watching mode.
The bar for any further cut is high as data has been resilient. Now, Freda, let's begin with Norway. You know, the overall data in Norway has been relatively strong, and one may wonder if the economy really needs lower rates.
In a previous podcast with Morten, the economist covering Norway, he had mentioned that the baseline is for the Nordisk Bank to cut in September and continue at a quarterly pace until, I think, 1Q26, and the Nordisk Bank to stop at 3.5%. So how is the Niobel curve priced versus this expectation? Are there any trades that you think is attractive, either at the front end or, you know, further out the curve?
Thank you, Kendra. Thanks. Yes, that's right.
Our current call is for a quarterly pace of cutting, although data recently has been quite strong. For example, the labor market seems to be quite stable, and there's indications of strong domestic demand, and that has driven a strong repricing higher in the money market space over the last month. Market pricing has a similar magnitude of cuts to us, with around 80 basis points of cuts priced throughout the next year to a terminal close to 350.
This is in line with our view, but the difference in profile stems mainly from the timing at which this 3.5% is reached. Markets are pricing it considerably later than our forecast call of Q1 in 2026, so they're pricing it closer to the end of 2026. I mean, let's see what the OGOS CPI data brings, as lower childcare prices could lead to surprises, but I'd say in general, due to how strong the economy is, there's no clear reason why markets would price the trough in the cutting cycle any closer.
We were bullish on the 2026 thrust, but given this resilient backdrop, we've shifted to a more neutral stance. Further out, one-year, one-year neighbors hold off considerably since the start of August, in line with the moving money market, and we're staying neutral until there's more clarity on the Norges Bank rate path or a more clear catalyst that would warrant lower yields. The five-year, five-year looks fair versus the front end, but one-year, one-year, five-year, five-year curve is trading towards the lower end of its past two months' range, so basically since the surprise cut in June, and we think the range will hold for the time being and would expect the curve to steepen slightly, purely on the back of this range trading.
Okay, so basically no strong bias in terms of directional move for neighbor yields from your side, which makes sense given the macro environment we are in. Anything you like in cross-market space? So let's say, you know, versus euro or versus dollar, for example?
I think neighbor euro spreads look interesting in the front end for investors that are interested in positioning bearishly for neighbor yields relative to the euro yields due to risks around monetary policy path, and that is in either monetary money markets or short-term swaps. We basically see a non-trivial risk of neighbor money market yields to underperform versus front-end euro rates on a fundamental basis, but also the spread is tight from a relative value perspective. Further out, even though the 10-year neighbor euro spread is modestly tight as well, we don't think the current residual is large enough to warrant fading, and in any case, we believe any RV could potentially remain sticky.
So, Kikandra, let's switch to the Riksbank. What is market pricing in terms of Riksbank moves over the coming months, and do you think this is fair? Yes.
You know, the Stibor curve is pricing some further easing over the coming months, but only around, let's say, I think 40 percent probability of a 25-basis point cut at the September meeting, which is in three weeks' time. Now, to remind our listeners, our baseline call is still for a September cut, which is the final call, final cut in this easing cycle as of now. The flash inflation report from earlier today showed some downside surprise in core inflation versus market consensus.
I think, I mean, important to highlight that the levels are still elevated in terms of core inflation, which printed at 2.9 percent OIA, but importantly, this has now dropped below 3 percent. You know, the core inflation had increased earlier this year and was driven primarily by changes in basket weights. So this dip, this seen today, is a welcome relief for the Riksbank and, in my view, increases the odds for a September cut, although I have to admit that it is not a done deal yet.
But at this point, a 40 percent probability for a September cut appears a bit low, my point, my view, although I don't expect it to move significantly until we have more data over the coming few days. Now, a cumulative of around 25-basis point of easing is priced in over the next several months, which I think is fair, although the timing feels a bit stretched out to me. If I put all of these things together, I think money market steepness, my anchor at the front end are attractive, which could benefit if a September cut is delivered in line with our view.
If I move further out the curve, you know, the one-year, one-year STIBOR also appears to be in a range and likely to stay in this range over the coming months, as we don't see any catalyst moving this in either direction. So overall, we believe in a range trading for one-year, one-year STIBOR as well. OK, so no strong directional bias from your side as well.
Anything in cross-market space? How's the one-year, one-year STIBOR EURIBOR spread doing? Yeah, no strong directional bias in Sweden as well.
And as I mentioned, you know, it's an artifact of how the macro conditions are across currencies. Now, on a cross-market basis, the one-year, one-year STIBOR EURIBOR spread has also been in a range, although this spread is now towards the bottom end of this range. So, you know, when I do my analysis, I find the spread also appears too narrow.
If we regress this against, let's say, the level, which is you can proxy that to be the one-year, one-year STIBOR level, and I take some macro factors in it, which is I proxy, you know, that Sweden euro growth forecast division index, our own index for the growth forecast divisions, the differential over this over the past few months, the one-year, one-year STIBOR EURIBOR spread appears very tight based on this model. So we had a bias to, you know, towards a tighter or narrower one-year, one-year STIBOR versus EURIBOR. We are now turning tactically neutral on this cross-market spread.
We remain of this view that this spread is unlikely to move significantly in either direction, given similar macro backdrop and central bank dynamic. So we prefer, you know, just to fade the extremes as a strategy over the coming weeks. Thanks for that.
I've noted that there's been a sharp narrowing in the 10-year Sweden top spreads. So what's going on there? And what are your views going forward?
Yeah, 10-year Sweden benchmark cross-spread has narrowed sharply, you know, about 15 basis point of narrowing over the past month alone. Current level of, which is also around 15 basis point, is close to the narrowest seen over the past decade. Now, this narrowing, in my view, has been driven by a combination of factors.
One, I mean, the fiscal easing that was announced by the government, it was expected from in our baseline. But, you know, announcement of this obviously helps the matter. There has been a second narrowing of global swap spreads, which Swedish swap spread do exhibit a strong correlation to Euro swap spread, for example.
German swap spreads and their narrowing has contributed to some Swedish narrowing as well. And finally, I think there have been anecdotally evidence of continued receiving in the intermediate sector of the Swedish curve, which is the swap curve, which is, again, supportive of narrowers there. Now, at these levels, which are, as I mentioned, at multi-year lows, I am tactically neutral on spreads, which appears too narrow in my fair value analysis.
Now, I think it's on a medium term and trading from a narrowing perspective or a narrowing bias makes sense. But of course, I think current levels are optically too narrow and thus we stay neutral. So with that, we'll wrap up here.
Thank you all listeners. Stay tuned for more updates on the fixed income space here at AnyRates. J.P.
Morgan's global research podcast series. This communication is provided for information purposes only. Please read the J.P.
Morgan research reports related to its contents for more information, including important disclosures. Copyright 2025. J.P.
Morgan Chase & Company. All rights reserved. This episode was recorded on 4th of September, 2025.