UBS warns that the Swedish krona may have rallied too far, raising the risk of a near-term pullback.

The currency has gained roughly 4% on a trade-weighted basis since November 2025, pushing the EUR/SEK exchange rate toward multi-year lows.

According to the bank’s latest report, strategists expect EUR/SEK to rebound toward 10.80 in the short term before resuming its broader downward trend. While strong domestic growth and favorable global conditions continue to support the krona, Sweden’s central bank, Sveriges Riksbank, has expressed concerns that the currency’s strength could weigh on already weak inflation.

UBS notes that the krona’s recent gains have been driven by both external and internal factors, including a global economic recovery, looser financial conditions, and rising European defense spending. These trends have boosted new orders and overall business activity in Sweden.

However, the bank cautions that investor positioning has become increasingly skewed toward long SEK positions. With EUR/SEK already trading below levels suggested by interest rate differentials, UBS sees limited upside for the krona in the near term despite its strong fundamentals.

Looking ahead, UBS projects EUR/SEK will end 2026 around 10.50, with risks tilted to the downside. The bank recommends waiting for a move closer to 10.80 before initiating short positions, or considering selling rallies above 10.90.