© Reuters. Norwegian banknotes of different denominations
By Simon Johnson
STOCKHOLM (Reuters) – The Swedish and Norwegian currencies are set to strengthen against the euro over the next year, boosted by strong economies and higher interest rates, a Reuters poll forecast on Friday.
Both nations have seen their currencies slide over the last six years, reflecting ultra-loose monetary policy, housing market problems and in Norway’s case, lower oil prices.
With both economies fundamentally strong, analysts have long considered the Norwegian and Swedish crowns as undervalued. But the cautious policies of the Norges Bank and the Riksbank have trumped wider economic trends.
Sweden’s currency has had a bumpy ride in recent months. Even though it has lost around 20 percent of its value against the euro since summer 2012, the Riksbank remains worried that a gain for the crown would undermine its efforts to push up prices.
It has held rates at -0.50 percent since early 2016 and with inflation now back at 2 percent, the Riksbank has said it will start to hike toward the end of this year.
But uncertainty remains about when it will resume raising rates. The policymakers themselves are divided on timing.
“The crown will start to strengthen as we approach a rate hike, whether that happens at the end of this year or next year,” Elisabet Kopelman, an economist at SEB said. “The crown is unreasonably weak at the current levels. It is negative rates that are the problem and maybe worries about a trade war to an extent.”
Overall, economists predicted the Swedish crown will strengthen to around 8.08 to the dollar
Graphic: Riksbank rate, inflation and the Krona: http://tmsnrt.rs/1qEN4Rz
Norway’s crown has developed similarly, losing around 25 percent of its value against the euro in the last six years as the price of oil slumped. But a global economic pick-up has reversed some of the losses and Norway’s economy has recovered. ()
Despite weaker-than-expected inflation in recent months, Norway’s central bank has penciled in a rate increase in September from the current record low of 0.50 percent, citing higher oil prices, a strong housing market and faster growth.
The Norwegian crown is set to strengthen to around 7.38 against the dollar
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