Swedish Krona Advances as Economic Recovery Gathers Pace

  • Gross domestic product grows faster than originally estimated
  • Unemployment unexpectedly declines in August, report shows

Sweden’s krona jumped after a report showed the economy expanded faster in the second quarter than originally estimated and unemployment unexpectedly declined.

The krona surged 0.6 percent to 9.3752 per euro as of 11:13 a.m. in Stockholm. It gained 0.7 percent to 8.3100 per dollar.

Gross domestic product grew 1.1 percent in the quarter, higher than the 1 percent original estimate, Statistics Sweden said Friday. A separate report showed seasonally adjusted unemployment fell to 7 percent from 7.3 percent. It was seen rising to 7.4 percent in a Bloomberg survey of analysts.

The data give backing to the central bank, which last week kept its key rate unchanged at a record low of minus 0.35 percent and maintained the size of a government bond purchasing program at 135 billion kronor ($16 billion) for this year. Policy makers vowed to keep rates unchanged over the next year and said that the expansionary policy and “positive development” in the economy will drive underlying inflation to its 2 percent target next year. They said they remained prepared to provide further stimulus.

“The Riksbank has done a lot and however you twist and turn it, things are going in the right direction,” said Roger Josefsson, chief economist at Danske Bank in Stockholm. “It’s obviously had effects on the krona, so it’s something that’s been positive for the Swedish export industry.”

Still, inflation and inflation expectations will continue to be in focus and wage negotiations will be a “hot topic” until March, Josefsson said.

“The Riksbank will be very careful to appear even the least hawkish until we have wage agreements in place,” he said. “If they were to indicate that they were less soft, the krona would strengthen and they don’t really risk that.”

Danske Bank still sees further easing and a prolonging of the bond buying program, he said.

Nordea Bank said that the reports make it less likely that the bank will cut rates again.

While inflation and inflation expectations remain in focus, stronger economic activity should make the Riksbank “more confident that inflation will rise longer out,” said Torbjoern Isaksson, chief analyst at Nordea.

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