Swedish, Norwegian currencies set to firm amid economic recovery

OSLO: The Swedish and Norwegian currencies will continue to make gradual gains against the euro and dollar during the next 12 months, propelled higher by the ongoing economic recovery from the coronavirus pandemic, a Reuters poll of analysts showed.

Vaccination against COVID-19 is accelerating in the Nordic region while international trade is rebounding, resulting in rapid economic growth for Sweden and Norway and lending support to their currencies.

Having plunged in March last year during the first wave of infections, the Swedish crown quickly regained lost ground and now trades around 5% stronger against the euro than its pre-pandemic level and 12% stronger against the US dollar.

Economists polled by Reuters expected the Swedish currency to make an additional gain of around 2% against the euro and 5% against the dollar by mid-2022.

The Swedish Riksbank on Thursday kept its key policy rate on hold at 0.0% and also maintained its asset purchase plan, as was widely expected among analysts.

"By conducting an expansionary monetary policy, the Riksbank contributes to continued good development of the economy and to inflation attaining the target more permanently," the central bank's executive board said.

Norway's oil industry has been boosted by a rebound in crude prices and the central bank has pencilled in a rate hike for September, placing it at the forefront of developed economies in raising post-pandemic borrowing costs.

Norges Bank last year slashed rates to a record low 0% and intervened in the currency market to prop up the crown but now forecasts four hikes in the coming 12 months as it seeks to normalise monetary conditions.

The Norwegian currency, which weakened sharply last year, has returned to the same level against the euro as seen before lockdowns began 16 months ago.

Against the dollar it is around 8% stronger than before the virus outbreak.

In the coming 12 months, the Norwegian crown will likely rise by some 4% against the euro and 7% against the dollar, the analysts on average predicted.

CHANGE OF GOVERNMENTS

The Swedish Social Democrat-led government resigned this week after losing a confidence vote, giving right-of-centre parties a chance to gain power.

However, the outcome is far from certain and the re-appointment of caretaker Prime Minister Stefan Lofven remains an option, as does a snap election.

Norway is meanwhile preparing for national elections in September in which Conservative Prime Minister Erna Solberg's centre-right coalition is widely expected to lose to the centre-left.

It remains uncertain which Norwegian political parties would join in a Labour-led government.

By this time next year, Sweden's crown was predicted to strengthen to 9.90 to the euro from 10.14 now, the median forecast showed. Meanwhile, the Norwegian crown was seen trading at 9.80 to the euro one year from now, against around 10.20 at present.