As the ECB and Riksbank rates decisions become desynchronized, Société Generale FX strategists have noticed that EUR-SEK rates differentials do not accurately predict the FX rate’s path.
Trading the Krone as an Equity Proxy
Since April, the short rates spread has been widening, creating a pro-carry environment that has strengthened the correlation between EUR/SEK and risky assets, particularly European equities.
While this correlation has been somewhat volatile over the summer, the recent simultaneous rise of the SEK and Eurostoxx indicates that the FX market is once again viewing the krone as an equity proxy.
Analysis:
The relationship between EUR/SEK rates and risky assets, specifically European equities, has become more intertwined due to the widening short rates spread. This correlation has implications for investors, as movements in the FX market may now reflect shifts in equity markets. Understanding this dynamic can help individuals make informed decisions about their investments and financial strategies.