With both US and European economies growing robustly, the direct EUR/USD currency pair is largely neutralized. A more effective strategy to gain exposure to Europe's strengthening growth is by investing in higher-beta, pro-cyclical currencies like the Scandinavian Kroner, which are less impacted by broad US dollar movements.

Contrary to Norway, Sweden faces significant downside inflation risks. A forthcoming VAT cut in April, combined with large basket effects between March and May, is expected to push core inflation towards 0.5%. This will significantly undershoot the Riksbank's forecast and intensify pressure to ease monetary policy.

A country's fiscal health is becoming a primary driver of its currency's value, at times overriding central bank actions. Currencies like the British Pound face a "fiscal risk premium" due to borrowing concerns, while the Swedish Krona benefits from a positive budget outlook. This creates a clear divergence between fiscal "haves" and "have-nots."

Contrary to conventional wisdom, a rate cut is not automatically negative for a currency. In economies like Sweden or the Eurozone, a cut can be perceived as growth-positive, thereby supporting the currency. This contrasts with situations like New Zealand, where cuts are a response to poor data and are thus currency-negative, highlighting the importance of economic context.

The market is pricing 50 basis points of easing from Norges Bank by the end of 2026. However, strong growth, a solid labor market, and high inflation suggest the central bank will not deliver these cuts, implying that front-end Norwegian yields are biased higher.

The Federal Reserve's dovish stance, combined with a resilient global growth outlook, creates a favorable environment for "pro-cyclical" currencies like the Australian Dollar and Norwegian Krone. This "middle of the dollar smile" scenario suggests betting on currencies sensitive to global economic momentum, not just betting against the dollar.

A key driver for the Swedish Krona's outperformance is the repatriation of capital by Swedish investors who hold sizable US assets (over 50% of Sweden's GDP). This "de-dollarization" flow provides a distinct and powerful tailwind for the currency beyond the general pro-cyclical global backdrop, supporting further gains.

Norge Bank's forecast includes an implicit easing bias, but strong demand, persistent inflation, and fiscal easing make actual rate cuts improbable. The market is currently overpricing the likelihood of the central bank delivering these cuts.

The investment case for a stronger Swedish Krona (SEK) is not based on the Riksbank raising interest rates. Instead, the currency's strength is expected to come from positive domestic growth, fiscal policy, and regional economic spillovers, making rate differentials a secondary driver.