The Swedish and Norwegian crowns will rise against the euro in the coming year, staging a slow rebound from recent weak levels as expectations of economic growth outweigh the effects of ultra-loose monetary policy, a Reuters poll found on Wednesday. Sweden's crown has lost around 12 percent of its value since the middle of 2012, when it traded at around 8.17 to the euro.
The fall has come despite economic growth that outpaced most of Europe, as the central bank has slashed interest rates to a record low of minus 0.35 percent to combat deflation fears. Swedish consumer prices - flat or falling for most of the last three years - are now showing signs of picking up and analysts say the central bank is likely to allow the crown to strengthen somewhat as long as the process is gradual.
"That adjustment is going to come when the Riksbank steps to the side and is less active in trying to put a brake on that development," said Stefan Mellin, economist at Danske Markets. "They will do that when they see that inflation is coming up to the target and inflation expectations stabilise." One euro currently buys around 9.27 Swedish crowns but is expected to shift to 9.025 a year from now, a Reuters poll of 40 foreign exchange specialists predicted on Wednesday. In the short term, however, the exchange rate is likely to be volatile.
The trade-weighted crown index, closely watched by the Riksbank, is stronger than it was just prior to the last Swedish rate cut and many analysts expect further monetary easing before year end. Any move to looser policy by the European Central Bank would probably force the Riksbank to react, with a rate cut and extension of its QE stimulus programme the most likely measures.
"I don't think any central bank at the moment is too keen to see their currency strengthen, particularly given what is happening in the global economy," Trevor Charsley, senior adviser at AFEX Markets in London, said. Oil producer Norway has seen its crown plummet 30 percent against the dollar and 15 percent against the euro in the past year as crude prices halved.
Norges Bank recently surprised most investors by cutting its key policy rate by 25 basis points to a record low 0.75 percent and said it was likely to cut again in the next twelve months, sending the currency into a steep drop. It now costs around 9.27 Norwegian crowns to buy one euro and the poll predicted it would gradually strengthen, hitting 9.10 to the euro in six months and 8.90 in a year. "Low turnover and liquidity and seasonal sales will ... weigh on NOK," brokerage DNB Markets said, while adding that at current levels the Norwegian currency remained fundamentally undervalued. "Long term we expect to see a very gradual appreciation," DNB said. Both currencies were seen weakening against the dollar in the next six months as the US Federal Reserve may start raising interest rates.