By Greg Holden
A variety of articles have analyzed the rising strength of the Swedish krona (SEK) to point of exhaustion. A key aspect emphasized, though – as is usual in this global economic environment – is caution. But is caution warranted when it comes to Sweden?
Let’s evaluate the claim.
Sweden’s krona is rising at a more-than-healthy rate. The USD/SEK has moved from 8.1311 last June to as low as 6.3614 today. The EUR/SEK witnessed a similar price movement from as high as 10.2695 in November 2009 to today’s current price of 8.8760.
The fear with this rising strength comes when viewing Sweden’s concurrent economic growth, which rose 7.3% year-on-year in Q4 2010. Analysts have been forecasting a gouging effect from the rising SEK, which will eventually pull down on Swedish exports and dampening growth.
This claim was made starting from late-2010, but has yet to bear any signs of occurring as expected.
In fact, Sweden’s economic growth appears dissonant with what is happening elsewhere in the world. As the Wall Street Journal recently pointed out, Sweden doesn’t face many of the same problems as other global economies. Sweden faces no sovereign debt crisis like Europe; no deflationary fears like Japan; no unemployment or budgetary problems like the United States; nor fears of an over-strengthened currency by its central bank, like Switzerland.
Indeed, the Riksbank actually raised interest rates to 1.5% in 2010, with an expectation to reach 3.0% by Dec. 2011. Swedish Finance Minister Anders Borg also told reporters lately that Sweden’s government is expecting growth of 4.8% in 2011, an upward adjustment from the previous expectation of 3.7%.
It appears that an apt metaphor for Sweden’s trajectory is to view all global economies as being in a race to normalcy, with Sweden finishing first in Q4 2010. The prize is unprecedented growth lasting as long as the other global economies continue the race.
The next logical question to ask, in regards to the caution urged by speculators, then, is “How close are the other economies to finishing?”
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
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