As Japan braces for a potential nuclear meltdown, banks and global investors watching the crisis have begun to reevaluate their currency positions given the rapid shift in risk appetite.
As many large investors turned to safe-havens following the devastating earthquake and tsunami, forex traders have watched the value of the Japanese yen and US dollar regain much of their former glory versus a number of the more peripheral currencies, like the Scandinavian kroner.
Many banks have begun to adjust their expectations regarding interest rate hikes given the deteriorating global risk sentiment. Australia and New Zealand have even hinted at a possible reduction in rates by mid-year given the dramatic shift seen this past week.
Additionally, finance ministers in both Sweden and Norway have begun to propose higher capital requirements for banks and stricter controls on lending. The measure has been attacked by businesses as undermining competition, but financial overseers appeared favorable towards these initiatives given the region’s higher exposure to risk in comparison with its larger euro zone neighbors.
The impact of the shift in risk sentiment, a decrease in business confidence regarding the region’s proposed bank regulations, and falling commodity prices have combined to undercut the strength of both Sweden and Norway’s currency values. Against the US dollar, the Swedish krona (SEK) fell from 6.3071 to 6.4749 over the past three days, while the Norwegian krone (NOK) underwent a similar shift from 5.5704 to 5.7214.
