The krona rebounded strongly in October and has now completely offset September’s losses. This caused EUR / SEK to return to the 10.300 level where it had traded during the summer. The price action suggests that the krone is now much more resilient to COVID-19 shocks, according to economists at MUFG Bank.
“New cases have increased in Sweden and are now past the peak in June. Nevertheless, market participants still believe that Sweden has handled the negative shock of COVID-19 better than other major European economies. The Swedish government’s softer approach to implementing COVID-19 restrictions has helped soften the blow to economic activity, although a contraction of around -4% is still expected this year. It compares to forecasts of an economic contraction in the euro area of around -8.0%. The risks to growth in the fourth quarter are on the downside, however, and growth in Sweden was already slowing at the end of the third quarter. ”
“The relative resilience of the Swedish economy has eased some of the pressure on the Riksbank to continue easing policy. The Riksbank remains reluctant to push rates into negative territory. Governor Ingves stressed that the room for maneuver for further rate cuts is limited. Under these circumstances, we expect the crown to strengthen more gradually in the coming year, as the COVID-19 shock wears off.