Executive Summary
The Swedish Krona at USD/SEK 9.40 and EUR/SEK 10.85 has reversed from the best-performing G10 currency in 2025 (+16.8% vs USD) to the worst-performing in March 2026, as Operation Epic Fury punishes low-liquidity, risk-sensitive currencies with European manufacturing exposure. The Riksbank's repo rate at 1.75% — fourth in G10+SGD from the bottom — leaves SEK carrying negative rate differentials against virtually every peer except CHF and JPY, while CPIF inflation at 1.7% (below the 2% target) gives the Board no cover to tighten. The BIS REER at 84.0 (2005=100) sits 14–16% below its 20-year average, confirming persistent undervaluation despite the 2025 rally, and the IMF's 2025 Article IV assessed SEK as undervalued by 8–22% in real effective terms. The core tension is between deeply supportive medium-term fundamentals (AAA sovereign, ~5% C/A surplus, GDP growth outpacing the eurozone, fiscal expansion via NATO defence spending) and a hostile tactical environment (VIX at 30.6, Brent at $110/bbl, services PMI collapsed to 48.3, Norges Bank signaling hikes to 4.25–4.50%). Our stance is tactically bearish SEK with conviction 2/5, strategically mildly bullish SEK with conviction 3/5 — contingent on the Iran war's resolution timeline.