Swedish Krona relatively strong despite economic concerns


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Monday, 08 August 2011
The Swedish Krona has fared surprisingly well during the growing international debt crisis. A Euro now costs around Skr9:25.  This is a significantly stronger level than during the past financial crisis.

The Swedish currency is usually weakened sharply in times of international economic turmoil when uncertainty means that investors prefer to invest in large, and traditionally safe, currencies such as U.S. dollars, Euros and the yen. But when the Swedish economy now appears to be a role model in comparison with the U.S. and Japan as well as most euro area countries, the question will be that why the Krona should be weakening?

“The Swedish economy is stable and strong, yet the Krona is a very small value so there is a liquidity risk, which means that it is perceived as risky,” says Isaksson to explain why investors still prefer the dollars than the Krona when the Swedish economy is doing well.

But the decline is modest compared to the slope during the financial crisis when €1 fetched as much as Skr11:79 – that was in March 2009.

“Basically, we have no financial imbalances in the Swedish economy. We are also not exposed to any country where the risks are high, as Swedish banks' exposure to the Baltics during the financial crisis.”
In the uncertain economic situation, it is difficult to make forecasts for the krona. Sweden is a small economy and the exchange rate tends to weaken when there is turbulence in the markets, despite a fundamentally strong economy.

If the debt crisis leads to a weaker trend in the Swedish economy, it can also get the Riksbank to raise rates more slowly, with the risk of further weakening as a probable consequence.

“But if the debt crisis in the euro area calm down so will there be refocus on the Swedish economy to maintain that it keeps it strong outlook and then the expectations for Governor to increases the rates back, which in this case speak for the stronger exchange rate from the current levels,” says Torbj´┐Żrn Isaksson.
By Team

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