Ylva Cederholm, FX Research Analyst at Nomura, on the Swedish Krona

Note: This section contains information in English only.
Source: Dukascopy Bank SA
© Scanpix/Reuters
To what extent do you think the Swedish economy has been affected by the Eurozone debt crisis?
Definitely the Euro bloc crisis has impacted on the Swedish economy to a meaningful extent, especially through export, but also through confidence channels. As the crisis escalates in Eurozone, this also fits into Swedish residents' and companies' expectations and confidence in the future. However, the banking sector has not been so badly affected. The Swedes experience no major problems to finance themselves. Banks are still seen as relatively attractive and are not being affected so much. Mostly it is real economic impact through export and confidence channels.

Do you expect further Swedish economy weakening?
I expect it to weaken at least for the rest of this year from what we saw so far. I mean Q1 was relatively robust. From that I think we will see a weakening and that is largely due to continued problems in Eurozone and the fact that there is still no long-term solution in place. Even in the best scenario, you still see these problems taking a long time, with a very low growth in sentiment. It will be a very prolonged process, which basically will effect Sweden negatively as well.

How would you evaluate current performance of the Swedish Krona in comparison to other G10 currencies?
It has been performing very well, especially since the mid of May. That is I think due to number of facts: fairly strong global risk sentiment, foreign demand for Swedish assets such as government bonds. We have seen issuance of those bonds picking up in May and June.
There is also a more kind of real economic factors. If you look at interest rates, we have seen pricing out of rate cuts in Sweden.Especially going into today's Riksbank meeting, we have seen some decline in expectations of interest rate cut, and that has been one of the factors as well.
I think from where we are now the Swedish Krona can still be traded well from here in sort of risk-on environment. What I mean by that is that if we were to get a consistent risk sell-off, then I do think that stock will sell off as well. It does remain correlated to other risky assets such as equities. In that sense I do not see it as a sort of pure safe haven currency.

What is you forecast for Q3 and for the end of the year? What will be the key things to look out?
If for instance such a trigger like the ECB or payroll data on Friday were to cause significant risk sell-off, then I think the Krona would be vulnerable here. I also assume from the rate perspective what we saw today is as hawkish as the Riksbank would guess. By that I mean any more information from here, for instance the minutes, in two weeks time are likely to have a more dovish tone. Even if they remained on-hold yesterday, I think that the Riksbank is increasingly looking towards the possibilities of the need of more easing.
We have already undershot our EUR/SEK forecast. Thus, we are looking at 8.90 and 8.80 for Q3 and Q4 respectively. I think the risk is probably that we undershoot our forecast. However, I would say that in the near term, in the next few weeks, I see upside risk for EUR/SEK. In couple of quarters time if things come down a bit around Eurozone, then it can come back in trader round at current levels without a problem.

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