Swedish Krona Gains Momentum Against Norwegian Counterpart Amid Diverging Central Bank Policies

The recent surge in the Swedish krona to a five-week high against the Norwegian krone signals a potential rally, as the central banks of both countries prepare to take different policy approaches.

Central Bank Divergence

Analysts from Swedbank AB and Danske Bank A/S anticipate the Riksbank will maintain stable interest rates until June, following data indicating a higher-than-expected increase in Sweden's core inflation in February. In contrast, the Norges Bank has hinted at an initial easing move in March.

Money markets project a 30 basis point differential in policy easing by the Norges Bank compared to the Riksbank by June. This marks a reversal from a month ago, when Swedish rate cuts were expected to exceed Norwegian ones by 15 basis points.

Bearish Sentiment on Norwegian Currency

Options markets continue to express bearish sentiment on the Norwegian krone. "This rate repricing will broadly support the SEK, potentially leading to further downside for NOK/SEK," said Jesper Fjarstedt, an analyst at Danske Bank A/S. He predicts the Norwegian krone could drop to 0.95 Swedish krona in the coming months, reaching its lowest level since late 2023.

Economic Differences

Despite the interconnectedness of the Swedish and Norwegian economies, their currencies have diverged recently due to fluctuations in oil prices (affecting the krone) and changes in risk appetite (to which the krona is more sensitive).

Riksbank Cautions

Riksbank Governor Erik Thedeen cautioned against complacency regarding inflation, highlighting rising producer prices and global food prices. Francesco Pesole, FX strategist at ING Bank NV, believes the case for further rate cuts is weakening. Conversely, Norway's central bank has indicated a rate reduction is likely in March.