Trading the Swedish Krona: What You Should Know
Trading the Swedish Krona may not be as popular trading the US dollar or the British pound, but it may be a way to diversify your trading portfolio.
How many of you know that Sweden’s currency is the Swedish Krona? Probably few as the Swedish Krona (SEK) is not as popular as the euro or the British pound while Sweden is more known for some of its famous businesses such as IKEA, H&M, Volvo, Saab etc.
Sweden and Denmark have kept their individual currencies instead of joining the euro as it helps them control their monetary policies without having to follow the European Central Bank’s (ECB) directives, although they must be in line with the European Union’s guidelines regarding public debt etc.
In this blog, we will share some valuable insights regarding the Swedish Krona and help you expand your trading mindset.
Swedish Krona: The currency of a small but strong economy
Sweden has a population of only 10.4 million people, but its economy ranks 25th on a global level and 11th in Europe. Sweden’s economy is a highly developed export-oriented economy, aided by timber, hydropower, and iron ore. Sweden has one of the most well-educated and tech-trained workforces in the old continent and has attracted many significant corporations from around the world who have included it in their investment plans to take advantage of its vast potential.
The Swedish Krona is the 11th most traded currency in the world according to the Triennial Central Bank Survey of foreign exchange and Over-the-counter (OTC) derivatives markets. The Krona, which means crown in Swedish, replaced the riksdaler in 1873. The Swedish Krona’s exchange rate depends on the monetary policy implemented by Riksbank, the world’s oldest central bank and the third oldest bank founded in 1688. It should be noted that the Riksbank was established by the Riksdag of the Estates and was fully independent of the King’s authority who had played an instrumental role in the closing down of Riksbank’s predecessor bank due to the excess printing of notes.
Riksbank monetary policy and the Swedish Krona
Reviewing the euro to Swedish Krona (SEK-kr) exchange rate charts, we can see that Sweden’s currency recorded a 4-year high against the single currency on October 1st 2021, trading at 9.91 kr. However, ever since then, the euro has gained ground and reversed losses, trading at 11.74 kr on June 22nd 2023.
Date Range: January 1st 2018 – 22nd June 2023. Date Captured: June 22nd 2023. Past Performance is not an indicator of future results.
Sweden’s central bank board will convene on June 29th to decide on interest rates. Some economists suggest that the Riksbank will seek to reduce the pace of rate hikes by moving forward with a 25 basis points raise.
Date Range: March 22nd 2023 – 22nd June 2023. Date Captured: June 22nd 2023. Past Performance is not an indicator of future results.
It should be noted that the board decided in April to lift interest rates by 50 basis points while the meeting minutes revealed that policymakers wouldn’t hesitate to tighten monetary policy even more if data reports justified the move.
ING: Swedish Krona likely to remain vulnerable
ING’s currency analysts suggested in a report that Riksbank’s moves may not be enough to support the Krona. “Hawkish messaging was arguably the Riksbank's primary tool to support SEK, and it’s hard to see that narrative being rebuilt in June, especially if inflation continues to move in the right direction. As Floden himself admitted recently, the Riksbank may want a stronger currency, but there’s not a lot it can do about it. More SEK weakness might push the Riksbank closer to considering FX intervention, but we have stressed multiple times how threatening intervention seems more likely to us than actually deploying this, given the relatively low ammunition in terms of reserves,”they note in a report released on May 18th.
Commenting on the upcoming board meeting, the Dutch bank’s economists said that the post-meeting statement could leave the door open for further rate hikes. “Having hiked rates by 50 basis points in April, Sweden’s Riksbank is likely to dial back the pace to a 25bp move on 29 June. With new forecasts due at this month’s meeting, the question is whether policymakers try to call the top in their interest rate cycle or point towards more hikes in the autumn. While we suspect the bank may not be as explicit about hiking again in September as it was in April, the newly released interest rate projection will probably keep the door open to another move if needed.”
Swedbank: Krona could begin to strengthen over the long term
Speaking to the Estonian ERR news website, Swedbank’s chief economist Tõnu Mertsina said that, although the krona has dropped to a record-low against the euro, he predicts a surge over the long term.
Mertsina said that the value of the krona against its competitors depends on the state of the Swedish economy and the way that the Riksbank will implement its monetary policy, adding that the rise in interest rates poses significant dangers to the Swedish economy and investors have become wary of the Swedish krona.
Swedish Krona: Manage trading risks with the right tools
The Swedish Krona may not be one of the most popular currencies to trade in global markets such as the US dollar or the British pound, but it may be used by some traders as a portfolio diversification option. The Swedish Krona doesn’t make the financial news headlines so traders would have to conduct more thorough research if they want to include the Swedish currency in their strategies.
Regardless of the popularity of the Swedish Krona, trading forex and other instruments involves risk. Beginner traders may not have the skills or experience to form a strategy that would minimise losses if markets moved against them. Therefore, beginner traders may be even more exposed to the danger of losing valuable funds in the process.
Risk management tools can be used to reduce risk, anxiety and stress. Beginner traders who are not accustomed to using them can learn in various ways. Online brokers offer educational webinars, articles and e-books that beginner traders can access and tap into the knowledge of experienced professionals. Utilising risk management tools in the correct way enables beginner traders to design their own trading plans without jeopardising funds that would divert them from achieving their financial goals.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
