The Swedish currency has reached its strongest point in several years; according to local experts, this is due to several factors: the stock market, interest rates and Sweden’s bold, maverick strategy against the coronavirus.
The Swedish krona has seen a powerful rally, becoming 13 percent stronger against a weakening dollar since last March and gaining 7 percent against the euro.
The Swedish currency hasn’t been that strong since September 2018. According to local experts, this is due to three factors: the stock market, the interest rates and Sweden’s strategy for dealing with coronavirus, the newspaper Svenska Dagbladet reported.
The hike began when the Governor of the Central Bank, Stefan Ingves, abandoned the negative interest rate last December, raising the rate to 0 percent. Subsequently, many central banks around the world lowered their interest rates to 0 in response to the coronavirus outbreak.
“Now all central banks in the western world are around 0. Previously, Sweden deviated with the lowest interest rate, together with Switzerland and to some extent Denmark”, Handelsbanken currency strategist Lars Henriksson explained to the newspaper Svenska Dagbladet.
As the interest rates equalised, it was no longer advantageous to borrow kronor and buy stronger currencies, and the the krona appreciated in value.
The next reason was US Federal Reserve Chairman Jerome Powell and his colleagues around the world pumping extra money due to the COVID-19 crisis. Investors chose the stock market for offering the most reliable chance of getting returns, which prompted a rise. This embolden investors further and spurred them into buying peripheral currencies, such as kronor. COVID-19 has weakened the dollar against other currencies. The pandemic is expected to hold back growth in the US and keep its monetary policy relatively soft.
“In addition, there is uncertainty ahead of the presidential election this autumn where Joe Biden, who is considered less growth-oriented, has taken strides forward,” Anders Eklöf of Swedbank told Svenska Dagbladet.
Last, but not least, Sweden’s maverick coronavirus strategy with no lockdowns whatsoever is also believed to have played a role.
“COVID-19’s negative effect on the Swedish economy may be less than in countries that had a complete shutdown,” Carl Hammer of SEB told Svenska Dagbladet.
According to SEB, Sweden’s GDP will have fallen by 8 percent during the second quarter of the year, while European countries that completely locked down can experience GDP falls of 12 to 20 percent. The US economy declined by a record 32.9 percent during the second quarter.
Handelsbanken’s Lars Henriksson agreed that the Swedish corona strategy has benefited the Swedish economy in the short term, yet suggested that the effect may fade. He pointed out that while Sweden managed to keep afloat thanks to its service industry, as opposed to the countries that kept restaurants, bars and hotels closed, the Swedish economy will suffer in the long run due to its dependence on the export industry and ties with manufacturers, subcontractors and clientele.
In Sweden, which refused to shut down and largely pursued everything in a business-as-usual mode, over 80,000 COVID-19 cases have been confirmed, resulting in over 5,700 deaths, most of them senior citizens. As this number is much higher than its Nordic peers’ death tolls combined, Sweden’s response sparked a lot of criticism over unnecessary “death, grief and suffering”, in the words of Swedish academics who penned a cautionary letter to the US not to follow Sweden’s example.