SEK: Almost record low level – Nordea Markets

Global uncertainties have also hit foreign exchange markets and mainly Emerging Markets currencies have faced headwinds but also the Swedish krona has weakened sharply, points out the analysis team at Nordea Markets.

Key Quotes

“Actually, the Swedish krona is now at a post-2009 low, trading at just below 0.70 against the Danish currency. This has happened despite Sweden’s high growth rates over the past many years, red-hot housing and labour markets and a huge current account surplus. According to normal textbook theory, a strong economy must have a strong currency. But for Sweden the problem is that inflation remains too low compared with the Riksbank’s 2% target.”

“So the bank tries to weaken the currency by keeping interest rates below the Euro-area level, prompting capital outflows. This way the monetary policy authorities can boost competitiveness, growth and inflation.”

“But it could make it more difficult for Danish companies to sell their goods in Sweden, Denmark’s second-largest export market after Germany. Swedish goods, on the other hand, become cheaper in the Danish market. The effects will not really impact the Danish economy – and the Danes’ improved purchasing power should not be ignored. With the strong Danish krone, many Danes (especially in the eastern part of the country) save a lot by going to Sweden to shop or for a holiday.”