The Swedish krona and currency-related exchange traded fund have not had as good a year as other developed country currencies.
The Invesco CurrencyShares Swedish Krona ETF (NYSEArca: FXS) fell 11.4% year-to date as the Swedish krona depreciated 10.4% to SEK9.13 against the USD, the worst performer among any other developed market currency.
Among the 10 most heavily traded currencies in the world, the krona has even underperformed the Chinese yuan, which has taken a beating from the ongoing trade conflict with the U.S., and the United Kingdom’s British pound, which has been pummeled over Brexit fears, the Wall Street Journal reports.
“The krona has probably been one of the most painful trades for investors over the past 18 months,†Kamal Sharma, senior FX strategist at Bank of America Merrill Lynch, told the WSJ. “It seemed to be everything that you wanted from a currency.â€
Many traders were caught flatfooted by Swedish central bank’s decision to stand pat in light of the European Central Bank’s recent interest rate hike.
Sweden’s Riksbank Lowered Benchmark Repo Rate
Sweden’s Riksbank lowered its benchmark repo rate below zero back in February 2015 as falling prices raised concerns that European economies could fall into a deflationary cycle. While inflation has since pushed above the 2% target, the central bank signaled rates won’t rise until the end of the year. Some believe the bank may even push it off until 2019.
Consequently, in an environment where everyone else is looking toward monetary tightening, Sweden has stuck with a loose policy, weakening its domestic currency on the global stage.
Nevertheless, the Riksbank is not without cause as inflation remains modest once volatile prices are taken into account and global trade is an ongoing concern – exports make up 45% of Sweden’s GDP.
Political risk may also be thrown into the mix as national elections are set on September 9, with the far-right party, which ran on a platform of anti-immigration and called for a Swedish exit from the E.U., is gaining steam.
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