Jane Foley, Senior FX Strategist at Rabobank, points out that Sweden goes to the polls on September 9 and opinion polls are currently suggesting that Sweden Democrats, another far-right party, could also enter parliament as the third largest party.
Key Quotes
“In Germany, the presence of the far right meant that coalition discussions were difficult and protracted, the same is possible in Sweden.”
“Just at the impact of the 2015 crisis has weakened Merkel’s leadership in Germany, in Sweden the 100 year old dominance of the centre-left Social Democrats is now in question.”
“Sweden’s Social Democrats remain the largest party in Sweden. However, rising support for the Sweden Democrats means that that the long established party could record its lowest share of the vote for more than a century.”
“Some commentators suggest that the drop in support for the Social Democrats may also be linked to the economy’s transition away from the industrial age.”
“For currency markets, political uncertainly tends to be unsettling. How the SEK reacts after the election depends on how much of a disruptive force the Swedish Democrats turn out to be.”
“In Q2 Swedish GDP registered a better than expected 1.0% q/q. Growth is being fed by rising employment which in turn is being supported by increasing labour supply. The implication is that immigration is enhancing the growth potential of the economy.”
“The lack of clear constraints in the labour market are helping to keep inflationary pressures under control and, while dry weather has boosted electricity production costs, underlying inflation remains moderate.”
“We would add the uptrend in EUR/SEK since the middle of last year will also contribute to increased inflation potential.”
“On the assumption that the Riksbank does hike rates before the end of the year, we expect that EUR/SEK can push lower towards 10.30 on a 3 month view.”
“A significant caveat to this forecast, however, is that political uncertainty will have reduced by then. Near-term there is the potential for some politically induced volatility with the May high near EUR/SEK10.70 acting as resistance.”
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