Corporate foreign exchange news
Krona and krone considerably overvalued
Tuesday, 21 February 2012 09:21:01 GMT
The Swedish krona and the Norwegian krone have been found to be at the most overvalued point for 40 years, according to a recent report by Bloomberg, which notes that the significant overvaluation could damage their reputation as a safe haven during economic downturns.
Exports in Sweden fell six per cent in December, which account for half the nation's output. In Norway, trade also slipped 4.3 per cent in the last quarter of last year, as investors are driven away by high currency exchange rates.
According to an Organization for Economic Cooperation and Development, this weak trade has left the currencies far too expensive. Sweden's krona has been found to be 25 per cent too expensive and the Norwegian krone more than 40 per cent too dear.
Riksbank governor Stefan Ingves and his Norwegian counterpart Oeystein Olsen have both signalled that they are willing to act on the strength of the currency, and will likely use similar intervention strategies to that of China, Japan or Switzerland.
Peter Von Maydell, head of foreign-exchange strategy at Credit Suisse Securities in London, said: “Those currencies need to depreciate.
“Monetary policy in the case of Norway and Sweden is resisting currency strength.”
Analysts have predicted that the currencies will depreciate against the dollar and the euro, and changes have already been seen against Japanese, Australian and New Zealand currencies. At present, the krone is overvalued against the dollar by about the most since at least 1970, based on a gauge of purchasing power parity by the Paris-based OECD.
Bjoern-Roger Wilhelmsen, chief interest-rate and currency strategist at Swedbank First Securities in Oslo, and a former central bank economist, has warned that there are limits as to how much appreciation the currencies can take. Any losses are likely to be compounded owing to the fact that the two currencies are the lest-traded currencies within the Group of Ten.
Progress in Greece and strong economic data has been a major reason for the recent boom in currency strength, as well as movements in China where the central bank cut reserve requirements for lenders.For more information on foreign exchange treasury services and risk management, visit our Corporate FX sitePublished by Jamie Jemmeson
Exports in Sweden fell six per cent in December, which account for half the nation's output. In Norway, trade also slipped 4.3 per cent in the last quarter of last year, as investors are driven away by high currency exchange rates.
According to an Organization for Economic Cooperation and Development, this weak trade has left the currencies far too expensive. Sweden's krona has been found to be 25 per cent too expensive and the Norwegian krone more than 40 per cent too dear.
Riksbank governor Stefan Ingves and his Norwegian counterpart Oeystein Olsen have both signalled that they are willing to act on the strength of the currency, and will likely use similar intervention strategies to that of China, Japan or Switzerland.
Peter Von Maydell, head of foreign-exchange strategy at Credit Suisse Securities in London, said: “Those currencies need to depreciate.
“Monetary policy in the case of Norway and Sweden is resisting currency strength.”
Analysts have predicted that the currencies will depreciate against the dollar and the euro, and changes have already been seen against Japanese, Australian and New Zealand currencies. At present, the krone is overvalued against the dollar by about the most since at least 1970, based on a gauge of purchasing power parity by the Paris-based OECD.
Bjoern-Roger Wilhelmsen, chief interest-rate and currency strategist at Swedbank First Securities in Oslo, and a former central bank economist, has warned that there are limits as to how much appreciation the currencies can take. Any losses are likely to be compounded owing to the fact that the two currencies are the lest-traded currencies within the Group of Ten.
Progress in Greece and strong economic data has been a major reason for the recent boom in currency strength, as well as movements in China where the central bank cut reserve requirements for lenders.For more information on foreign exchange treasury services and risk management, visit our Corporate FX sitePublished by Jamie Jemmeson
