Norway and Sweden’s currencies will strengthen against the euro in 2022
OSLO, January 7 (Reuters) – Norwegian and Swedish currencies will appreciate against the euro in 2022, overcoming economic strains caused by a recent resurgence of the coronavirus pandemic, a Reuters poll among analysts predicted on Friday.
Both Norway and Sweden have reintroduced social restrictions to help combat the outbreak of the Omicron variant of covid-19, which was first discovered in late November, but their currencies are still expected to rise, forecasts show.
In Norway, the economy is being helped by a boom in the price of natural gas, the country’s largest export alongside crude oil, and the currency has received a boost from hawkish monetary policy.
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Norges Bank raised its key interest rate in September and again in December last year and says that it aims for three more increases in 2022, which consolidates its position as the most aggressive interest rate setter in the developed world. Read more
Adding fuel to the currency is the fact that Norges Bank, on behalf of the government, continues a long-term policy of buying kronor daily to help pay for public spending, despite a record-breaking oil-driven trade surplus.
Calculating future tax payments from oil companies is complicated, and Norges Bank can therefore wait for actual payments in the coming months before embarking on a new direction, Nordea Markets said in a statement to customers on 4 January.
“Until the central bank changes, we will see higher Nibor (interest rates) and a stronger NOK,” Nordea wrote.
Reuters’ survey predicted that the Norwegian currency would trade at 9.80 against the euro by the end of the year, the median forecast showed, up from around 10.07 at present.
SWEDEN LAWS
But while the value of the Norwegian currency rose against the euro in 2021, above expectations from a survey last January, the development was noticeably weaker in Sweden.
The Swedish krona went from being one of the best-performing major currencies in 2020 to being one of the worst last year – despite a rapid economic recovery – in the midst of global supply chain problems, bottlenecks and a dove-like Riksbank.
In 2022, much will again depend on the central bank. Markets expect inflation above target and continued robust growth to accelerate policy normalization plans, which could potentially strengthen the currency against the euro.
“Inflation expectations may rise slightly and this may trigger the Riksbank to become a little less soft,” says Anders Eklof, Swedbank’s chief currency strategist.
The pace of the Riksbank’s downsizing will be examined and many analysts believe that interest rate increases will come faster than what is stated in the central bank’s current interest rate path, which requires an initial increase only at the end of 2024. Read more
Swedbank sees the krona at 9.90 against the euro in 12 months, an increase from around 10.33 at present, while the median forecast among economists in the survey was 9.95.
But with Omicron infections picking up speed and the controversy over whether the current high inflation rate is temporary or a more sustained factor, the outlook remains uncertain.
The Riksbank expects inflation to decline during the second half of the year. And the longer interest rate settlers stick to the plans for an increase only at the end of 2024, the weaker the outlook for the Swedish currency will be.
(For other stories from the Reuters currency survey in January:)
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Reporting by Terje Solsvik in Oslo and Simon Johnson in Stockholm; Vote by Sarupya Ganguly, Anant Chandak and Indradip Ghosh in Bengaluru, edited by William Maclean
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