(Bloomberg) --
The Swedish krona may extend its rebound from the lowest in a decade even if the Riksbank keeps interest rates at sub-zero levels this week, according to one of the nation's biggest banks.
Markets are already expecting the Riksbank to lower its rates trajectory on Thursday but traders may have overstretched their selling of the krona. Skandinaviska Enskilda Banken AB's data show significant off-loading over the summer, especially by hedge funds, and the bank says it is rare for such positions to last.
"We think a correction is due with Riksbank as a trigger," SEB analysts Carl Hammer and Karl Steiner said in a client note. "Risk reward is to be long krona over the Riksbank rate decision as the expectations are already very dovish."
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The krona has rallied more than 0.5% in the past four days, to trade at 10.7522 per euro on Wednesday, and SEB recommends short-term selling of any dips in the Swedish currency.
The Riksbank will hold its benchmark rate at minus 0.25%, according to all economists surveyed by Bloomberg. Governor Stefan Ingves and his colleagues will likely lower the rate path, dropping plans to tighten toward the turn of the year, amid a deteriorating domestic and international economic outlook.
The Swedish economic surprise index, which measures data surprises relative to market expectations, began to deteriorate from an excessive high earlier in the summer. It has since reached maximum lows that the SEB thinks are hard to sustain, which would also support the krona.
To contact the reporter on this story: Greg Ritchie in London at gritchie10@bloomberg.net
To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, William Shaw
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