The Swedish crown is likely to retain its long-term appeal to investors seeking an alternative to the debt-ridden euro, even if the Riksbank starts cutting interest rates as early as Thursday to prop up the economy. Some strategists said the crown could hit a record high against the euro in coming months, indicating nervous investors are more interested in diversifying euro holdings into a safe haven than they are in higher returns.
In the short term, market players looking to park funds in relatively low-risk Scandinavia may be more tempted by the Norwegian crown after the Norges Bank held interest rates at 1.5 percent last week, and surprised some by flagging the possibility of an increase early next year.
In contrast, some banks forecast Sweden's Riksbank, mindful of falling inflation expectations and keen to support exports, could cut rates twice to 1.0 percent by year-end. "If they do not cut this week there will be at least room for easing in their rate profile. But that does not alter the long-term bullish picture for the Swedish crown," said Audrey Childe-Freeman, head of FX strategy at BMO Capital Markets.
Investors looking for European safe havens have been left with few options since the Swiss National Bank capped the franc against the euro last year. A surprise drop in Swiss gross domestic product on Tuesday also underlined how few countries are immune to slowing euro zone growth.