Swedish Krona Loses More Ground Amid Trade Uncertainties And Poor Economic PerformanceSwedish Krona Loses More Ground Amid Trade Uncertainties And Poor Economic Performance
Sweden’s bleak economic output and the ongoing trade uncertainties or tensions around the globe continued to weigh down on the Krona, which also saw declining interest by market experts and traders. The Swedish Krona (SEK) is one of the major global currencies, but its performance has lately been wanting. Its value against the Euro has so far dropped by about 6.5% since the start of 2019, and about 8% of its value versus the US dollar has been wiped out within the same period.
The SEK reached the 9.65 level vs the USD on Thursday's trading session and 10.79 vs the Euro during the same session. To put things to perspective, the SEK has not been this weak against the USD since 2002 and the last time it was at such levels against the Euro was in 2009. The Swedish Krona’s performance has been so poor that the Financial Times described it as the poorest performing major currency in 2019.
"The relentless sell-off in the Krona may indicate loss of confidence in the currency. That is a bit worrying,” stated Danske Bank’s lead analyst Stefan Mellin.
The bank’s senior economist Michael Grahn expressed concerns over the Krona’s performance and even pointed out that things will likely continue to worsen for the currency. If that happens, then it is likely that inflation and import prices will increase in Sweden.
The causes behind the SEK’s poor performance
The Swedish Krona’s poor performance in 2019 may have something to do with the decision by Riksbank, the country’s central bank to increase interest rates towards the end of 2018. However, the central bank also made two more decisions that negatively affected the Krona’s performance. Riksbank also revealed a bond-buying program that would last 18 months. The central bank also announced in February that the Swedish economy was growing weaker.
The SEK may have also gotten weaker following an announcement by the European Central Bank (ECB) stating that the European economy would remain weak. The ECB also announced that there were no plans to hike interest rates in 2019 contrary to expectations. The Swedish central bank might thus not be able to implement policies to correct the economic performance until the European economy gets back on track towards recovery. Sweden’s economy was heavily affected because most of its trade is with the EU.
Unfortunately, the European economy is still facing a lot of economic uncertainties due to issues such as Brexit which have negatively affected trade in the European region. This means that it will take some time for the Swedish economy to recover.
Bloomberg's currency survey predicts that the Swedish Krona will be valued at around 10.35 against the Euro and around 9.01 against the US dollar. Most analysts, including the Nordea Bank Abp, have already adopted a bearish outlook for the Krona. Riksbank executive Kerstin af Jochnick stated that it is hard to explain why the Krona has been on a downward spiral in terms of value.