Trump Makes Swedish Krona Biggest Gainer in Test for Riksbank

  • Krona is biggest gainer among G10 currencies since election
  • Economic optimism has increased Riksbank’s krona tolerance

Much has been surprising about the market reaction to Donald Trump’s upset U.S. presidential election win. But that the Swedish krona would be the biggest gainer among the G10 currencies could top the list.

Sweden’s small, export-focused economy -- home to global powers such as clothing retailer H&M AB and Ikea -- would likely be one of the main victims should Trump’s protectionism push harm global trade. So far, investors have ignored that threat, sending the krona higher amid bets U.S. tax cuts and fiscal stimulus will stoke global growth and signals from the Swedish central bank that it’s reaching the end of an unprecedented easing campaign.

“Hard data will continue to look good at least for another six months,” said Martin Enlund, chief currency analyst at Nordea Bank in Stockholm. “That’s an environment where the Riksbank can continue to be a bit less proactive, calm down a little bit and perhaps even tolerate that inflation turns out lower than expected for a month or two.”

The currency of the Scandinavian nation has rallied almost 5 percent against the euro and 2.2 percent against the dollar since the U.S. reality TV star was elected president on a platform of curbing immigration and restricting free trade. It recovered quickly after slumping to a six-year low in the immediate turmoil following the Nov. 8 election.

Among other major currencies, only the Russian ruble and the Colombian and Peruvian currencies have performed better against the euro.

After cutting rates deep below zero, the Swedish central bank is now seen as more tolerant of krona strength.

Minutes from its latest policy meeting showed that all board members think the economy “looks better on all fronts and that means they’re a bit more tolerant of a krona strengthening,” said Stefan Mellin, an analyst at Danske Bank. “That suggests that they have some more breathing room, but should the krona strengthen too much the picture could change, perhaps already in February.”

Governor Stefan Ingves had to use his tie-breaking vote in December to extend the government bond purchases into this year amid growing concerns from some of his colleagues that further action would only have a limited effect and hurt bond liquidity. The minutes published this month revealed that three of six board members spoke out against giving an outlook that signaled another rate cut.

Read more on the Riksbank’s latest policy moves

Underlying inflation almost touched the Riksbank’s 2 percent target after accelerating to 1.9 percent last month. Manufacturing confidence has risen to its highest in more than two decades, while the purchasing managers index for the services industry has hit a five-year-high. The Riksbank will announce its next policy decision on Feb. 15.

Still, both Danske Bank and Nordea don’t rule out currency interventions should the krona strengthen too much or too quickly.

“You can unfortunately not exclude that they will carry out currency interventions, but I think that the first line of defense will be to do something with rates: either to postpone plans for rate increases, or cut rates,” said Mellin. “They haven’t given up their krona focus.”

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