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The Swedish Krona recorded the weakest performance among the G10 currencies this year despite a comparatively high rate of economic growth. Moreover, inflation has been rising since the end of 2015 although it still remains clearly below Swedish Riksbank’s target.
The Riksbank has principally eased its monetary policy further this year. But so did the ECB and the Bank of Japan (BoJ) and they were unable to weaken their currencies. On the contrary: both EUR and JPY have appreciated since the start of the year.
Against this background, the krona’s weakness does not seem sustainable. Either inflation will continue to rise, as Riksbank expects. In that case it is going to signal an end to its ultra-expansionary monetary policy sooner or later, which should cause krona to appreciate.
Low levels of inflation puts the Riksbank under pressure to act. In that case it could soon find itself in a situation like the European Central Bank or the Bank of Japan when it reaches the limits of its possibilities. As soon as the market participants were to realise that they would trade krona at stronger levels, as they are already doing with EUR and JPY, Commerzbank reported.
