Swedish Krona Surges

The Swedish krona is surging today. Hawkish central bank comments have offset disappointing retail sales figures and there is some talk of month-end related demand.

The euro recorded multi-year lows against the krona on Feb 16 just above SEK8.7 and had recovered to a high near SEK8.8550 earlier today before reversing sharply. In recent hours the euro has given back nearly everything it has recorded since Feb 16.

The minutes from the Riksbank meeting showed on of the doves (Ekholm) was less dovish and the hawks (Ingves, Oberg, and Wickman-Parak) sounded more hawkish, suggesting the conditions under which a larger than 25 bp rate hike would have to be delivered. Svensson seemed more concerned about methodology and cautioned against switching back and forth between headline and core rates.

The krona is easily the strongest currency within the G10 this year. Rising 6.2% against the US dollar. The Norwegian krone is in second with a 4.4% advance. While the euro needs to break the SEK8.70 area, we expected a move toward SEK8.50 in the coming months.

The Riksbank seems unperturbed by krona strength, though we note that a number of Swedish corporates have cited it as an important challenge. The Swedish equity market has under-performed thus far this year and is off about 2.65%, while other developed equity markets are generally stronger. That said, it has had a three-day and nearly 3.7% advance.

Swedish retail sales fell 0.1% vs consensus expectations of a 0.7% increase. It is the third consecutive monthly decline. Separately, the Jan trade surplus was also smaller than expected at SEK9 bln, down from SEK10.8 bln in Dec and consensus expectations of SEK10 bln.

The Riksbank meets again on April 20. A 25 bp hike is the most likely scenario. Soft economic data is unlikely to change this outlook, barring a dramatic surprise. Interest rates are low, consumer confidence is stronger, the labor market is strengthening and fiscal policy is expansionary.