Recently, the Swedish krona has found its footing again. At the end of September, the euro reached a year-high of 11.33 kronor, after which it retreated and is now trading at around 11 kronor.
The krona has also strengthened against the US dollar, albeit more marginally.
“The connection is very strong”
Tommy von Brömsen, a currency strategist at Handelsbanken, points out, however, that the explanation lies not with the krona but with the euro’s weakness against several currencies, linked to increased concern about France's public finances. When European interest rates then fall while their Swedish equivalent remains stagnant, this favors the Swedish krona.
“The connection in recent months has been very strong, and it is not always so clear,” he says, referring to the connection between interest rate differentials and exchange rates.
Could strengthen
If Handelsbanken is right in its currency forecast, this could mark the beginning of a clear strengthening of the krona against both the US dollar and the euro. Anyone planning to spend their holiday next summer in a eurozone country can expect an exchange rate of 10.70 kronor to the euro if Handelsbanken is right. At the same time, the dollar is expected to fall to around 9.15 kronor, compared with today's rate of around 9.90.
However, one factor is of great importance to the outlook, Tommy von Brömsen notes: the Iran war.
Then the krona should be able to strengthen as oil prices fall and foreign interest rates fall more than Swedish ones. This would support the krona - not only because of the interest rate differential, but also because risk appetite returns as geopolitical concerns ease, he says.
