Beside the Emerging Market FX implosion, the Swedish Krona has been weakening for a long time and the trend has gone somewhat parabolic lately.
Elections date is coming up and as most people following this FX know, the right wing Sverigedemokraterna, have been increasingly popular and are gaining ground rapidly.
We wrote about Sweden and asked “What is going on” earlier in August, suggesting:
The problem is that the right wing Sverigedemokraterna have gained popularity while the other parties have been ignorant in debating what seems important questions for the voters, immigration. Ignoring a party that has more than 20% of the votes according to latest polls could prove to be lethal.
Latest polls show a slight decrease for the right wing party (yellow), but we must admit it is a close call. Some polls even suggest that Sverigedemokraterna could be the biggest party.
One thing is sure, the political situation as well as the Swedish Riksbank (oldest central bank in the world) have managed depressing the SEK to these levels. The FX is pushing new lows and trades at levels not seen since 2009.
Given the economic boom in Sweden, and especially the booming Stockholm area this is all but great FX management.
Note the big trend channel since 2012 on a weekly chart. We are trading right in the upper part of the channel. Maybe time for a breather and a contrarian trade leading into election?
EURSEK 3 month implied volatility is up over past weeks and trades at levels last seen in 2016. Not overly surprising given we are approaching uncertain elections, but levels here look a bit stretched.
Another problem the SEK has had is the obsession the Swedish Riksbank has with the 2% inflation goal.
If inflation sticks around these levels and the right wing wind slows down a bit, the bashed SEK could revive, at least for the short term.
For more reading about the uncertain elections visit the Bloomberg article here.
Source: charts by Bloomberg