UBS Upgrades EUR/SEK Forecast on Sweden Inflation Miss

UBS now expects a significant upswing in EUR/SEK after consecutive Swedish inflation disappointments. Sweden’s CPI came in at 1.8% y/y in February 2025, below the Riksbank’s 2.0% target for a third month. Core measures also softened: CPIF fell to 1.9% from 2.1% and producer prices declined 0.3% m/m. UBS argues this should tilt monetary policy toward earlier Riksbank rate cuts, while eurozone inflation remains more persistent (core above ~2.5% early 2025). Swap pricing reflects the divergence: about 75 bps of Riksbank cuts vs 50 bps of ECB cuts in 2025, widening by roughly 25 bps compared with early 2024. The bank also points to weaker Swedish growth (Q4 2024 GDP +0.2% q/q) and rising unemployment (7.8% in Feb 2025), versus relatively steadier eurozone data. On positioning, CFTC data shows speculative net shorts on the Swedish krona rose 15% for the week ending March 7, 2025, and options demand for EUR/SEK calls above 11.60 has increased. Technicals support the UBS view: EUR/SEK broke above its 200-day moving average in early March 2025 and cleared the 11.50 resistance level. Key risks include a sudden Swedish inflation rebound, ECB cut timing shifting, or a risk-on/risk-off reversal that benefits the more risk-sensitive krona. Traders are advised to watch upcoming Swedish inflation prints and Riksbank guidance for confirmation of the EUR/SEK trend.