Sweden's Krona Strengthens as Government Raises Economic Growth Forecast

Sweden’s krona appreciated versus the euro and the dollar as the nation’s government raised its economic growth forecast for the next two years, underpinning the case for the central bank to increase borrowing costs.

Sweden’s currency strengthened against all but one of its 16 most traded peers, after weakening for two consecutive days against the shared European currency and its U.S. counterpart. The economy will grow 3.8 percent in 2012 and 3.6 percent in 2013, the government said in its spring fiscal policy bill. It forecast a 4.6 percent expansion this year, up from 4.8 percent predicted last month. It also expects a widening surplus over the next four years as unemployment falls.

“The budget highlights the relatively strong fundamentals of Sweden’s economy,” said Carl Hammer, chief foreign-exchange strategist at SEB AB in Stockholm. “The krona’s strengthening against all currencies as the market is reminded of this case.”

The krona was 0.8 percent stronger versus the euro at 9.0497 as of 4:59 p.m. in London. It depreciated to 9.1246 against the 17-nation common currency yesterday, the weakest level since Dec. 14. The Swedish currency appreciated as much as 1.3 percent against the dollar before trading 0.8 percent stronger at 6.2521.

The Stockholm-based Riksbank has increased its key rate five times since July, raising it to 1.5 percent in February from a record low of 0.25 percent. The bank is trying to prevent Europe’s fastest-recovering economy from overheating and contain inflation. Its next meeting is scheduled for April 20.

Today’s strength in the Swedish currency “is a question of positioning after the budget, but also ahead of the Riksbank meeting, where they’re expected to tilt toward the hawkish side again and revise their rate path a tad higher,” Hammer said.

Riksbank Governor Stefan Ingves has said he can’t rule out raising rates at all five remaining policy meetings this year. The bank will announce its next decision on April 20.

To contact the reporter on this story: Keith Jenkins in London at kjenkins3@bloomberg.net;

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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