Analysts have recommended a bearish position on the euro against the Swedish krona, arguing that Sweden’s currency could rebound sharply if geopolitical tensions in the Middle East continue to ease.
In a note published Thursday, BofA advised investors to short EUR/SEK through a three-month zero-cost risk reversal structure, citing the krona’s underperformance relative to other high-beta currencies since the April 7 ceasefire announcement in the U.S.-Iran conflict.
The bank said the Swedish krona has been the weakest-performing G10 currency since the conflict began, but analysts believe that weakness is overdone given Sweden’s strong domestic fundamentals, including fiscal stimulus measures and what they described as a balanced stance from the Riksbank.
BofA sees the krona as its preferred “de-escalation hedge” among major currencies, expecting Sweden to benefit from improving global risk sentiment, softer U.S. dollar trends over the longer term, and increased European fiscal and defence spending. The bank also forecasts Sweden to post one of the strongest economic growth rates in the G10 group.
Strategists added that Sweden’s strong fiscal position and status as a major electricity exporter could help cushion the economy against energy-related shocks, making SEK relatively resilient even under less favorable scenarios.
BofA also highlighted elevated EUR/SEK options skew, noting that current market pricing strongly favors euro calls over puts. The bank expects this imbalance to narrow quickly if geopolitical risks continue to recede.
Separately, the firm acknowledged pressure on its existing long EUR/NOK recommendation after Norges Bank unexpectedly raised interest rates and signaled the possibility of another hike. However, BofA maintained that markets may be pricing an overly optimistic combination of high oil prices and strong equity markets, leaving the Norwegian krone vulnerable if conditions shift.
source https://www.investing.com/news/forex-news/shorting-this-fx-pair-is-the-best-hedge-for-war-deescalation-bofa-4668980
