Despite reports of phenomenal growth in financial arenas and in GDP expansion, the Swedish krona (SEK) entered a downward slump over the past few weeks. Lying beneath this bearish groove is a history lesson that shows the krona persistently struggling during times of risk aversion.
The relatively high interest rates of the Swedish economy make the currency appealing in times when risk-taking is gaining ground among investors. The speculation that the Riksbank will lift interest rates at each meeting this year merely adds to this sentiment. But the downgrade of US debt by S&P’s ratings agency put global investors in a mentality of risk flight.
It is true that investors have seen some mild upticks in risk sentiment over the past few days, but such broodings have yet to flood back into the SEK in the way they were just one month ago. It is largely forgotten by now that the global recession of 2008 dramatically reduced the export capacity of the Swedish economy and that fears of a double-dip recession are beginning to do the same.
Growing pessimism and an outlook of impending recession are generating a lot of flight from the once-booming Swedish economy. It is true that Sweden weathered the financial storm better than most, but it is false to assume that it is above the present turmoil. The SEK may continue to see downward movement against its primary basket of currency rivals, having already shed 2% in the last two days.
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