By Russell Glaser
Increased rates of growth and rising interest rates are all positive factors for continued gains in the Scandinavian currencies, particularly the SEK and the NOK.
In an interview yesterday, Merrill Lynch’s Bill O’Neil, chief investment officer for Europe made the case for investors to move a portion of fixed income funds from Europe to selected Nordic countries such as Finland, Sweden, Denmark, and Norway.
O’Neil sighted a difference in monetary policy as a key advantage that these Nordic nations have over their European counterparts. Europe has the difficulty of assigning one interest rate to 17 sovereign nations, all with differing rates of growth and inflation. A disparity exists between the central nations of Europe such as Germany and France, versus the peripheral nations of the euro zone.
Germany is the engine of growth for the EU as the Bundesbank recently increased its 2011 GDP forecast to 2.2% from 1.8%. This is in stark contrast to the struggling peripheral nations of Europe who are dealing with high levels of unemployment and slowing growth. In the 3Q of 2010, the economy of Greece contracted 1.2%.
2011 growth rates in Sweden and Finland are expected to come in as high as 3%. Last year the Swedish economy grew 5.5%.
The Nordic countries, with the exception of Finland who is a member of the European Monetary Union, all set their own monetary policy. Economists expect rising interest rates which will in turn boost the Scandenavian currencies. Norway announced its intention to begin raising interest rates in the middle of this year. Sweden has already increased its benchmark interest rate four times last year and Swedish interest rates currently stand at 1.25% and are expected to continue to rise.
Expectations for an increase in European interest rates have also developed in the markets, but economists expect the European Central Bank to raise rates in the 3Q and at a slower pace than their Scandinavian counterparts.
Higher rates of growth and rising interest rates are all positive factors for continued gains in the Scandinavian currencies against both the euro and the dollar, particularly the USD/SEK and the EUR/NOK.
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
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