The Swedish krona fell to its lowest level against the euro since 2009 as a downturn in the housing market fueled broader investor concern about the Scandinavian nation’s economy.
(Bloomberg) — The Swedish krona fell to its lowest level against the euro since 2009 as a downturn in the housing market fueled broader investor concern about the Scandinavian nation’s economy.
The currency sank as much as 0.6% to 11.4434 per euro, taking its drop in the past 12 months to more than 8%. The krona could get some support on Thursday if the Swedish central bank raises its key rate 50 basis points as forecast, though some market watchers say policy makers may move cautiously given the mounting economic strains.
“The path for rate hikes this cycle may be shallower versus other G10 economies,” Goldman Sachs Group Inc. strategists including Praveen Korapaty wrote in a note to clients. “Depending on its view of the skew of the risks to the economy, the Riksbank may have a higher tolerance for inflation versus peers.”
Sweden’s builders warn higher energy prices and rising interest rates are deterring buyers, with home prices falling the most since the 1990s. There are also fears the slump could pose a broader financial-stability risk: the International Monetary Fund said Sweden may have to bolster bank buffers given the real estate sector’s dependence on market funding.
On Thursday, the Riksbank will have to juggle concerns about the sensitivity of the Swedish economy to interest-rate hikes against the need to quell inflation at a three-decade high — all with the weaker currency fanning the price pressures.
Governor Erik Thedeen called the krona’s drop “not welcome,” during a parliamentary hearing on financial stability last week.
“A key driver for the krona will be where the forward guidance goes,” wrote Adam Cole, a currency strategist at RBC Capital Markets, in a note to clients. “The risk of either a 25 basis point move this week or 50 basis points and dovish forward guidance leaves the near-term risk for the krona to the downside.”
–With assistance from Naomi Tajitsu and Greg Ritchie.
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