The Swedes digs gold overseas -Is there a Turning point in sight for the SEK?

source: usagold.com

SEK's rise versus EUR has been driven by expected short-term interest rate differentials (EUR-SEK) as much as it has been driven by the escalation of Europe's sovereign debt crisis in 2010 and solid economic fundamentals in Sweden. Although Sweden has an independently strong recovery - driven predominantly by goods exports - much of the pick-up in demand for Swedish goods has been a result of strong growth in Germany, Sweden's largest trading partner. Goods exports have been growing and resulted in strong gains in domestic consumption.

However, the future outlook for Sweden is maybe less certain as monetary tightening in the euro area in combination with signs of a moderation in emerging market growth (particularly China) could increase downside risks to Sweden during the aforementioned period. Further more ECB tightening and a moderation in German growth later in 2011 and not to mention rising inflation pressures which could act as a tax on growth across the globe. To summarize the yield advantage in favour of SEK (relative to EUR) may diminish somewhat as 2011 progresses.

If euro area sovereign debt distress intensifies in the near-term, forcing the ECB to remain on hold with rates a while longer, there is a risk that EUR/SEK could breach previous cyclical lows in the SEK 8.70 area. Still in my point of view the more likely scenario is that SEK sees a period of consolidation versus EUR.

Source: ecb.int/stats/exchange/eurofxref/html/eurofxref-graph-sek.en.html

Source: Monthly, FXshneider Report