High oil prices are starting to cause the terms of trade to slowly shift against the euro. The energy shock is not as strong as it was last August, but still, the direction of travel warns that the energy-importing currencies of Europe and Asia will continue to underperform. In our latest edition of FX speaking, we had a one-month target for EUR/USD at 1.04. We don’t see the need to change that. However, we must be aware of the risks of perhaps weaker US consumer data this week, which could provide a temporary boost to EUR/USD. Elsewhere, EUR/CHF has briefly broken below 0.9500 in nervous markets. However, we would not pursue this measure, as the Swiss National Bank has this exchange rate very controlled and only allows a very measured appreciation of the Swiss franc.
Furthermore, the political developments in Poland this weekend could come to be seen as a slight positive for the euro, in the sense that a more Brussels-friendly government appears to be coming.
On Friday, the Riksbank announced that it had sold $390 million during the first week of hedging foreign exchange reserves, while no euros were sold. We publish estimates before launch. and calculated that in a scenario where the Riksbank buys the same amount every day for five months (the average of the four to six month window indicated by the Bank), that would be equivalent to around $388 million per week, very close to the purchases reported during the first week.
We will see next Friday if they maintain such a stable purchasing calendar. In any case, the strength of the SEK during the currency hedging period would have suggested more aggressive purchases than the $390 million. The Riksbank has more firepower to adjust purchases upwards (if it is planned to do so), which is positive news for the SEK. We caution that currency hedging may not be enough to lift the SEK on a sustained basis, and external factors remain dominant. But we now see some downside risks to our target of 11.50-11.60 for EUR/SEK until the end of the year.