Report published August 28, 2026
Lower Interest Rates an Issue for SEK? Handelsbanken FX Research
Source and citation context
- Issuer
- Handelsbanken
- Report date
- August 28, 2026
- Analysis as of
- Not stated in source
Authors / editors: Michel Gubel
Finvaulta summarizes Handelsbanken's analysis. Attribute opinions, forecasts, time-sensitive values, and chronology to the issuer and report date; do not treat this page as an independent verification or a current market-data source.
Handelsbanken analyzes empirical data since 2002 showing that lower Swedish interest rates relative to global peers have consistently weakened the SEK, invalidating uncovered interest rate parity and turning the krona into a funding currency. While the rate gap remains a near-term headwind, the Riksbank is expected to hike in Q1 2027, narrowing the differential and supporting SEK strength later in 2027.
Key Takeaways
- 1.Uncovered interest rate parity (UIP) does not hold empirically for SEK since 2002; instead, lower relative Swedish rates have caused the krona to function as a funding currency.
- 2.Swedish rates have been lower than abroad during roughly two-thirds of the days since 2002, during which the krona depreciated by an annualized 1.9% including rate differentials, whereas it strengthened by 2.1% annualized when domestic rates were higher.
- 3.The Riksbank is expected to keep rates on hold until Q1 2027, maintaining a ~1% rate differential headwind near term, but narrowing rate gaps and positive data surprises in 2027 should support a stronger SEK trend longer out.
Table of Contents
- Summary
- Do lower rates imply a weaker currency?
- In this FX Pilot, we explore two main questions:
- Interest rate differential KIX-4 & KIX SEK
- Lower rates suggest a drag
- Low volatility is not the issue
- Research disclaimers
Report data
Historical return: Higher KIX with lower SEK rates
| Metric | Estimate | Context |
|---|---|---|
| SEK rate differential vs KIX-4 | -1.0% | Swedish interest rates are currently around 1% lower than the rest of the world (KIX-4). |
| Annualized SEK depreciation during lower domestic rate regimes | 1.9% | Annualized depreciation of the krona including rate differential during periods when Swedish rates were lower than abroad. |
| Annualized SEK appreciation during higher domestic rate regimes | 2.1% | Annualized appreciation of the krona during periods when Swedish rates were higher than abroad. |
| Carry excess return on short SEK position | 16.0% | Equally weighted carry excess return earned on a short krona position across the dataset. |
| SEK year-to-date performance in KIX terms | -3.5% | Depreciation of the Swedish krona measured in trade-weighted KIX terms through August 2026. |
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Authors / Editors
Reported Data Context
- SEK rate differential vs KIX-4: -1.0 % (2026) · Source: Bloomberg and Handelsbanken
- Annualized SEK depreciation during lower domestic rate regimes: 1.9 % (2002-2026) · Source: Bloomberg and Handelsbanken
- Annualized SEK appreciation during higher domestic rate regimes: 2.1 % (2002-2026) · Source: Bloomberg and Handelsbanken
- Carry excess return on short SEK position: 16.0 % (2002-2026) · Source: Bloomberg and Handelsbanken
- SEK year-to-date performance in KIX terms: -3.5 % (2026 YTD) · Source: Handelsbanken
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