MUFG Says Sweden's Krona Is Better Placed to Strengthen Further Than Norway's Krone

10:43 AM EST, 12/31/2025 (MT Newswires) -- Sweden's krona (SEK) has been the best-performing G10 currency in 2025, recording an outsized gain of around 19% against the US dollar (USD), said MUFG.

It has also outperformed the other Scandinavian currency, Norway's krone (NOK), pushing NOK/SEK back toward the lows last seen in early 2020 when the COVID-19 shock first hit the global economy. The bank expects Scandinavian currencies to strengthen further in 2026, although upside will be more modest as they are no longer deeply undervalued.

These currencies continue to benefit from improved risk sentiment toward Europe, initially triggered by Germany's significant shift to looser fiscal policy, stated MUFG. European economic growth has since surprised to the upside, demonstrating resilience despite trade disruptions from President Donald Trump's tariff hikes in the United States.

Global growth has also shown similar resilience.

Additionally, Scandinavian currencies are well positioned to benefit if fiscal risks become a bigger market focus in the year ahead, given Norway and Sweden's relatively healthy fiscal positions compared to rising public debt elsewhere, wrote the bank in a note to clients.

The external backdrop is proving particularly supportive for the SEK, given that Sweden is a small and open economy, pointed out MUFG. There are encouraging signs that Sweden's recovery is strengthening heading into 2026, with growth expected to accelerate to around 2.5% after averaging closer to 1.0% in recent years. Sweden's plans for looser fiscal policy, including lifting defence spending to 2.8% of GDP, will provide further support.

In light of these developments, the Riksbank has indicated that its policy rate will remain at the current level of 1.75% "for some time to come." Below-target inflation should curb expectations for rate hikes as early as next year. MUFG estimates EUR/SEK to fall further to 10.500 in 2026.

At the same time, the SEK is likely to continue outperforming NOK in 2026, added the bank. Unlike the SEK, NOK upside has been constrained by the ongoing decline in oil prices. NOK underperformance would deepen if oil prices fall further next year in response to the global supply glut.

The International Energy Agency (IEA) forecasts that global oil supply will exceed demand by 3.815 million barrels per day in 2026, representing a record surplus.

Additionally, cyclical momentum and central bank policy divergence point toward further NOK weakness against SEK. Norway's economy is expected to slow under the Norges Bank's more restrictive policy stance, according to MUFG. The Norges Bank has kept rates higher for longer to rein in inflation and currently plans one or two cuts in the year ahead.

With the Riksbank set to keep rates on hold, narrowing yield differentials should favour a stronger SEK.

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