USD/SEK Outlook:
The USD/SEK is likely to increase as it trades significantly above its recent average and is near the recent highs due to heightened risk aversion related to escalating conflict in the Middle East. ING Bank view: USD/SEK should continue to have larger downside potential in line with their bearish USD view, targeting a drop below 8.50 this year.
Key drivers:
• Rate gap: The US central bank is tightening monetary policy to combat inflation, while the Swedish central bank is less aggressive, giving the USD an advantage.
• Risk/commodities: Recent volatility in oil prices is supporting the USD, as investors turn to safe-haven assets amid concerns about global supply.
• One macro factor: The upcoming US ISM services PMI report could boost the USD if it shows strength in the services sector.
Range:
The USD/SEK is expected to hold within its recent 3-month range, remaining between approximately 9.26 and 9.42.
What could change it:
• Upside risk: A significantly positive economic report from the US could further strengthen the USD.
• Downside risk: A resolution to Middle East tensions may reduce demand for the USD as a safe haven.
