FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, suggests that the Swedish krona has been one of the best performing currencies during December.
Key Quotes
“The trade-weighted krona is threatening to break higher after consolidating at lower levels throughout most of this year. The recent strengthening of the krona prompted the Riksbank to release a statement yesterday which we view as a form of verbal intervention. The statement signalled heightened concern over the recent strengthening of the krona which creates risks for the upturn in inflation.”
“If the krona continues to strengthen “earlier and more rapidly” than forecast, the Riksbank stated that it will be more difficult to push up inflation towards their target, and is therefore “highly prepared to intervene in the foreign exchange market” whenever we deem it necessary. It is a clear signal that the Riksbank has moved closer to intervention if required to dampen krona strength.”
“The announcement itself should also help to discourage speculative demand thereby dampening krona strength in the near-term. The krona has strengthened only modestly recently implying that it probably wouldn’t take much further strengthening of the krona to prompt intervention in the near-term given that the Riksbank is appears very sensitive to krona developments.”
“Signalling heightened concern over krona strength and even intervention will likely only really dampen krona strength in the near-term. The relative economic fundamentals still remain favourable for a further strengthening of the krona in the year ahead. Sweden’s economy is expected to continue expanding robustly reducing the need for further Riksbank monetary easing. The krona is also significantly undervalued according to our long-term valuation estimates supported by Sweden’s sizeable current account surplus. If low inflation concerns ease as the year progresses the Riksbank will likely become more tolerant of further krona strength.”
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