The krona has rebounded strongly in October and has now fully reversed September’s losses. It has resulted in EUR/SEK falling back towards the 10.300-level where it had been trading during the summer. The price action suggests that the krona is now much more resilient to COVID-19 shocks, according to economists at MUFG Bank.
Key quotes
“New cases have moved higher in Sweden and now exceed the peak from June. Nevertheless, market participants still perceive that Sweden has coped better with the negative COVID-19 shock than other major European economies. The Swedish government’s more hands off approach to implementing COVID-19 restrictions has helped to dampen the hit to economic activity although a contraction of around -4% is still expected this year. It compares to forecasts for an economic contraction in the euro-zone of around -8.0%. Risks to growth in Q4 are to the downside though and growth in Sweden was already slowing at the end of Q3.”
“The relative resilience of the Swedish economy has eased some of the pressure on the Riksbank to keep loosening policy. The Riksbank remains reluctant to lower rates back into negative territory. Governor Ingves emphasized that the room for further rate cuts is limited. In these circumstances, we expect the krona to strengthen more gradually in the year ahead as the COVID-19 shock fades.”
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