Sweden Warns Exporters Krona Weakening Unlikely to Persist

Sweden’s state-backed export bank is warning businesses not to rely on a weaker krona to support their sales abroad after the currency sank to its lowest in a year against the euro.

“They shouldn’t expect a krona that will weaken significantly,” Peter Yngwe, chief executive officer of the Swedish Export Credit Corporation in Stockholm, or SEK, said in an interview yesterday. “There is no reason for the krona to fall significantly other than these short-term fluctuations.”

Sweden’s krona dropped 1.9 percent against the euro in the week through June 21 and this week reached its lowest since June 18, 2012. Against the dollar, it fell to its lowest since November following signals from the U.S. Federal Reserve it is preparing to scale back stimulus. Prime Minister Fredrik Reinfeldt said in an interview earlier this week his government is watching the exchange rate to see whether the weaker krona level “has come to stay,” adding the sell-off has helped exporters in the largest Nordic economy.

“We have strong finances, in other words fundamentals are good,” Yngwe said. “The krona is a small currency; one should be clear about that. All smaller currencies have been hit following these signals from the U.S. as risk-appetite has fallen.”

The krona rose 0.2 percent to 8.7668 per euro as of 8:33 a.m. in Stockholm, and traded 0.4 percent higher against the dollar at 6.7254.

An Obstacle

The krona appreciated 31 percent against the euro from the end of 2008 through the middle of March this year as investors poured funds into Sweden’s AAA rated bonds. That prompted warnings from Finance Minister Anders Borg that excessive krona strength could become an obstacle for the nation’s exporters.

Since then, investors have sought to exit their krona holdings as liquidity replaces public finance health as a driver of capital flows. Sweden’s krona is the biggest loser in the past week of 10 currencies tracked in the Bloomberg Correlation-Weighted Currency Indexes, having lost 1.7 percent in the period.

Yngwe said trading on Sweden’s haven status is safer for long-term investors than for speculators.

“If you buy the Swedish krona to invest and stick with the investment for a long time before exiting, then one should feel that it’s pretty safe,” he said. “But if you’re buying to make a quick deal, it’s probably not a safe haven, since it’s so sensitive” to market volatility, he said.

Volatility Index

The JPMorgan Global FX Volatility Index, which measures price swings in currencies, rose as high as 11.96 this week from a more than five-year low 7.05 in December. Three-month volatility in the Swedish krona versus the dollar rose 11 percent in the past week, data compiled by Bloomberg show.

Almost 70 percent of exporters in the largest Nordic economy said the krona’s strength at the end of May was hurting their business, according to a survey published Monday by the state-owned export lender, SEK. About half of Sweden’s $500 billion economy comes from exports, of which about 70 percent are destined for Europe.

“The krona is at a reasonably correct level where it is now and where it was before,” Yngwe said.

Before it's here, it's on the Bloomberg Terminal.