What now for the Swedish Krone?
Research NoteThe Swedish central bank, the Riksbank, hiked rates as expected today to 2 per cent. This caused a mini rally in the Scandinavian currency. But interestingly, although the Swedish economy has been one of the top G10 performers of 2010, inflation is rising and its fiscal position is exemplary when compared to the developed world, the SEK has underperformed versus the euro since February. It did manage to stage an impressive reversal last week appreciating over 1.5% versus the single currency as risk assets attracted buyer cross the board.
Both currencies are European and are considered to be at the risky end of the FX spectrum. A major driver of EURSEK has been relative interest rate expectations between the Eurozone and Sweden. As you can see in the chart below. As European rate expectations have increased in the first half off the year, this has boosted the euro versus the Stokkie.
This shows you the movement of the Euro-SEK 12-month implied yield (i.e. – interest rate expectations for the year ahead, white line) and EURSEK (green line) before today’s rate announcement. While the spreads was treading water EURSEK took a hammering. This is because the SEK is even more sensitive to risk than the euro, so appreciated strongly during last week’s market reversal. Legal disclaimer and risk disclosure The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions. Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts. Opinions expressed at FXstreet.com are those of the individual authors and do not necessarily represent the opinion of FXstreet.com or its management. FXstreet.com has not verified the accuracy or basis-in-fact of any claim or statement made by any independent author: errors and Omissions may occur.Any opinions, news, research, analyses, prices or other information contained on this website, by FXstreet.com, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. FXstreet.com will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
Alternative Options For Rising Interest Rates - News
The attractions of the SEK are clear: a good fiscal possition, a higher rate trajectory, good economic growth and untinged by the European sovereign debt crisis. This makes the SEK a solid alternative to the euro going forward and although it is
Fund managers say as stock prices continue to fall, many investors are shifting to the fixed income market in a bid to lock in yields in a rising interest rate environment. Analysts warn that this is likely to continue as long as volatility in the
If you have a view – or trading systems – that predict rising interest rates, you may want to shorten the duration of your bond exposure. 10% REITs – real estate and real estate investment trusts (REITs). The Vanguard REIT Index ETF (VNQ) is a good
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Structural Economic Challenges Face Caribbean - BAHAMAS SPECTATOR ...
By David Jessop
News Americas, LONDON, England, Tues. July 5, 2011: Across Europe, many Governments are in financial difficulty. From Greece to Ireland, Portugal and Spain, public expenditure cuts, austerity and retrenchment coupled with low levels of growth and rising inflation are creating significant political problems
In response, they are increasing taxes, cutting public expenditure, keeping interest rates low, and divesting themselves of an ever wider range of state controlled ventures.
The consequence is that protest, both public and private, is growing from a wide range of citizens. These include those most affected in the public sector, students in higher education who are having to pay increased fees or to graduate into unemployment, pensioners with smaller pensions, and for the first time what in Britain is referred to as ‘the squeezed middle’: the hard working middle class who had become accustomed to seeing their disposable income grow uninterruptedly for years.
However, these economic trends may have wider implications if as many economists believe the contagion from Europe and the United States’ continuing economic crisis spreads to nations such as those in the Caribbean that have not been able to diversify their external commercial, tourism and investment relationships.
The implication is that previous views of growth may be unsustainable for many years to come.
It may also be that the largely unspoken social contract that exists in many nations between Government and society over taxes and the delivery of continuously improving social services is unsustainable: in itself a significant political challenge if electorates refuse to accept ever greater levels of taxation while still holding on to a belief that services such as education, health care and support in old age should remain as they are.
Most concerning of all is a view emerging that inflation – largely imported through the rapidly rising price of oil and food – now poses the biggest threat to global recovery.
So serious has this become that the Financial Times ran as its recent front page lead story a report that the Bank for International Settlements (BIS) , which serves as a bank for Central Banks, believes that economic growth must now slow to curb inflationary pressure around the world.
The newspaper’s report referred to a speech delivered by Jaime Caruana, the General Manager of the Bank at its Annual General Meeting in Basel on 26 June, where he focussed on the steps required to build a lasting foundation for sustainable growth.
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