COMMENT-Swedish crown's recovery needs to be put in context

On the face of it, the Swedish crown's recent recovery looks good but the pickup needs to be put into context. A broadly weaker dollar on U.S. interest rate peak speculation, and magnitude of the SEK rally compared with its significant long-term weakening will weigh on recovery optimism.

The Riksbank has a growth and inflation dilemma and despite the better look to the crown, inflation remains too high. An interest rate hike to 4.25% this month will impact market sentiment but given heightened market expectations of such a move ahead of the Nov. 23 policy meeting, any support for the SEK could be fleeting.

While Swedish 2023 economic growth is likely to exceed expectations, the forecasts for 2024 are set to be revised down and while a fragile growth backdrop argues for a reduction in interest rates, high inflation could force a further tightening of central bank policy next February.

The crown is trading at better levels and the recovery could extend versus both the dollar and euro into the end of the year, but the longer-term outlook is less rosy.