Scandies Still No Safe Havens
In March, RGE wrote an analysis arguing that the Norwegian krone (NOK) and Swedish krona (SEK) were not becoming safe havens, contrary to what a number of analysts claimed at the time. We argued that a euro weakening explained a significant part of the Scandinavian currencies’ appreciation in the previous few months. Our thesis has been borne out during the recent market turmoil—induced by sovereign debt worries in the eurozone periphery—when, rather than appreciating, the NOK and SEK have actually depreciated against the euro.
Due to the woes in the eurozone periphery, the euro fell against the USD, especially last week when concerns about the euro’s future increased—in the week to May 7, the USD appreciated close to 4% against the euro. If the NOK and SEK were havens, they would have strengthened against the euro given the market uncertainty, but instead they actually depreciated. For example, the NOK slid 1.4 % against the euro in the week to May 7, and the SEK slid 1.7%. The chart below demonstrates how the USD, a traditional safe haven, has gained against the EUR.
Part of the NOK and SEK weakening can potentially be explained by lower interest rate expectations in Sweden and Norway due to the crisis, as well as their heavy dependence on eurozone export markets. Clearly, these currencies are not safe havens.
Source: Bloomberg
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