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Transcript
Helaba Research
FX FOCUS
1 December 2016
Swedish krona
AUTHOR
Christian Apelt, CFA
phone: +49 69/91 32-47 26
research@helaba.de
EDITOR:
Claudia Windt


PUBLISHER:
Dr. Gertrud R. Traud
Chief Economist/
Head of Research
Helaba
Landesbank
Hessen-Thüringen
MAIN TOWER
Neue Mainzer Str. 52-58
60311 Frankfurt am Main
phone: +49 69/91 32-20 24
fax: +49 69/91 32-22 44

The US dollar was able to appreciate against the euro. The British pound advanced even
more. The biggest losers were the Japanese yen and a few emerging market currencies,
such as the Turkish lira or the Mexican peso.
The Swedish krona has been one of the clear losers in 2016. The continuing expansionary
monetary policy by the Riksbank is weighing on the currency. However, economic growth in
Sweden is proving quite robust. While inflation is still too low from the perspective of the
central bank, it is slowly rising. The phase of an ever more expansionary monetary policy
should draw to a close in 2017. And since the Swedish currency is noticeably undervalued
as it is, the krona has considerable potential for recovery.
Helaba Currency Forecasts
Performance on a month-over-month basis
% vs. euro compared to the previous month (from 11/01 to 11/30/16)
US dollar
4,4
Japanese yen
-5,0
6,6
Swiss franc
0,1
4,0
Canadian dollar
Australian dollar
0,8
2,9
New Zealand dollar
Swedish krona
1,4
Norwegian krone
0,6
Czech koruna
-0,1
Polish zloty
-3,4
Hungarian forint
-1,5
This publication was very
carefully researched and
prepared.
However,
it
contains
analyses
and
forecasts regarding current
and future market conditions
that are for informational
purposes only. The data is
based on sources that we
consider reliable, though we
cannot
assume
any
responsibility for the sources
being accurate, complete,
and
up-to-date.
All
statements in this publication
are
for
informational
purposes. They must not be
taken as an offer or
recommendation
for
investment decisions.
British pound
3,1
Russian ruble
Turkish new lira
-5,5
South Korean won
0,8
2,4
Chinese yuan
0,8
Indian rupee
0,8
South African rand
-0,5
-2,5
Brazilian real
Mexican peso
■ Core currencies ■ Rest of G10 ■ Currencies of emerging markets
Sources: Bloomberg, Helaba Research
HELABA RESEARCH · 1 DECEMBER 2016 · © HELABA
1
F X F O C U S SW E D I S H K R O N A
SEK: downtrend coming to an end
Political events like the Brexit vote or the election of Trump dominated the year also in the currency
markets. Presumably for that reason, as well, little attention has been paid to Sweden’s currency.
And this even though the krona posted a striking development: after the British pound, it has been
the weakest among the major currencies in 2016, even though Sweden’s economy grew very
strongly. The euro-krona exchange rate jumped briefly over the 10.0 mark for the first time since
the beginning of 2010.
Aggressive monetary
policy depresses
Swedish krona
While growth in Sweden has been robust already since 2013, the krona has been in a downtrend.
The weak currency was surely not the economic driver, since foreign trade overall made a slightly
negative contribution to growth. The main driver behind the depreciation of the currency has been
Sweden’s own central bank. The Riksbank cut its key rate even more than the ECB into negative
territory. In addition, Sweden’s central bank launched a considerable bond-buying program.
Inflation slowly normalizing
Economy remains robust
% yoy
Index
Sources: Macrobond, Helaba Research
Sources: Macrobond, Helaba Research
% yoy
The Riksbank justified its aggressive monetary policy by pointing to the excessively low inflation,
which remained consistently below the 2 % target in recent years. The core inflation, too, was
below that level, even though the trend is by now pointing upward. In conjunction with the
recovering energy prices, inflation should rise in 2017, though still fall short of the target.
Continuing strong
growth
On the heels of 4 % growth last year, Sweden’s economic dynamism slowed in 2016, as expected.
At times, some of the sentiment indicators were even pointing to a pronounced slowdown in
growth. However, the economic barometers climbed again most recently. Sweden’s GDP should
expand at a rate of 3 % in 2016, and still at a solid 2.5 % in the coming year.
Monetary policy as a
reaction to the ECB
The outlook on growth and by now also on inflation hardly justifies the exceedingly expansionary
monetary policy. However, the measures taken by Sweden’s central bank must be seen within the
context of the ECB and the other central banks. The interest rate cuts and asset-buying programs
by the ECB tend to depress the euro and thus put appreciation pressure on currencies like the
Swedish krona. That would lower import prices and inflation overall. Even though these effects
would be rather temporary, the Riskbank would not be happy about them. Sweden’s monetary
policy can therefore be understood as a response to the ECB or as a preventive measure.
The export economy would probably not suffer massively from a strengthening of the krona. The
real exchange rate indexes point to a significant undervaluation. The current account is posting
stable surpluses of around 5 % of GDP. And compared to many other industrial countries, the
public finances look fairly healthy.
HELABA RESEARCH · 1 DECEMBER 2016 · © HELABA
2
F X F O C U S SW E D I S H K R O N A
Swedish krona very favourably valued
Interest rate difference points to lower euro-krona rate
Index
SEK
Sources: Macrobond, Helaba Research
Sources: Macrobond, Helaba Research
Clear recovery potential
for the krona
% points
Globally speaking, the trend to an ever more expansionary monetary policy seems to be coming to
an end; even the ECB will presumably extend only the timeline of its bond purchases. In the face of
a key rate of -0.5 %, the road to normality is a very long one for Sweden’s central bank. The
Riksbank is not likely to make any more interest rate cuts. In fact, it could initiate a turnaround over
the course of 2017. With a view to 2018, at the latest, one should expect rate hikes. The interest
rate differences vis-à-vis euro bonds will presumably develop in favour of Sweden. And since this
spread hardly reflects the rise in the euro-krona exchange rate, to begin with, there is considerable
appreciation potential for the krona. The euro-krona rate should decline in the direction of 9.0 by
the end of 2017.
Helaba Currency Forecasts
Performance
year to date 1 month
vs. Euro
current*
Q4/2016
Forecast horizon at end ...
Q1/2017
Q2/2017
Q3/2017
(vs. Euro, %)
US dollar
2,6
4,4
1,06
1,10
1,15
1,15
1,15
Japanese yen
7,8
-5,0
121
115
115
115
121
British pound
-13,0
6,6
0,85
0,90
0,90
0,90
0,90
Swiss franc
1,0
0,1
1,08
1,08
1,08
1,08
1,10
Canadian dollar
5,7
4,0
1,42
1,49
1,55
1,53
1,52
Australian dollar
4,0
0,8
1,43
1,51
1,53
1,49
1,47
Swedish krona
-6,2
1,4
9,77
9,50
9,30
9,20
9,10
Norwegian krone
6,4
0,6
9,03
9,00
8,90
8,90
8,80
Chinese yuan
-2,8
2,4
7,30
7,54
7,94
7,94
7,99
vs. US-Dollar
(vs. USD, %)
Japanese yen
5,0
-9,0
114
105
100
100
105
Swiss franc
-1,5
-4,1
1,02
0,98
0,94
0,94
0,96
Canadian dollar
3,0
-0,3
1,34
1,35
1,35
1,33
1,32
Swedish krona
-8,6
-2,9
9,23
8,64
8,09
8,00
7,91
Norwegian krone
3,7
-3,6
8,52
8,18
7,74
7,74
7,65
Chinese yuan
-5,7
-1,8
6,89 1,57
6,85
6,90
6,90
6,95
-15,1
2,1
1,25
1,22
1,28
1,28
1,28
1,4
-3,5
0,74
0,73
0,75
0,77
0,78
US-Dollar vs. …
British pound
Australian dollar
(vs. USD, %)
*30.11.2016
Sources: Bloomberg, Helaba Research 
HELABA RESEARCH · 1 DECEMBER 2016 · © HELABA
3