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Win-Win For SEK As EUR/SEK Trades At Its Lowest Since 2000

BySaxo Bank
AuthorSaxo Bank
Published 07/05/2012, 05:14 AM
Updated 03/19/2019, 04:00 AM
EUR/SEK
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The situation for Europe is a win-win for SEK at the moment, as EUR/SEK dropped to its lowest level since 2000 after the Riksbank left rates unchanged at 1.50% ahead of a possible ECB cut tomorrow.

Back in the year 2000, EUR/SEK dropped to new lows as the latest rage was mobile networking companies, and the direction of bubble stock Ericsson was a key factor in the strength of the SEK. Now, SEK is breaking to new highs for entirely different reasons: namely a win-win situation for SEK relative to the EU crisis. In past cycles, SEK tended to decline during times of risk aversion as it is a relatively thin currency and as the Swedish economy is leveraged to the strength of external demand due to its large current account surplus. But now, the focus is on other factors, like central bank profligacy and sovereign balance sheet condition. Now, if the EU manages to stumble along, it will require tremendous devaluation and QE to keep the periphery afloat – a SEK positive. Likewise, if the EU situation is re-aggravated, SEK remains a safe haven currency.

Of course, the grand test for the SEK would come on a strong bout of risk aversion. On the last bout of risk aversion in May and into early June, SEK showed some resilience. First, it sold off in sympathy with the overall decline in risk assets, but it began strengthening against the euro well before the bottom in equities was reached in early June. Even if the Riksbank moves to cut again in the near future, EUR/SEK could continue lower toward at least 8.50 and possibly 8.25 in the weeks ahead.

Chart: EUR/SEK
EUR/SEK taking out new lows since 2000 today.
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