General elections in Sweden are typically unexciting and predictable, but the upcoming election on September 9 has the potential to dramatically change the political landscape in Sweden.
Five Facts that Matter leading up to the Swedish elections:
- Socialists have dominated every election in Sweden for the past 101 years, making Sweden a guiding light for leftists around the world.
- Sweden’s far-right, anti-immigration party, the Sweden Democrats (SD), is on course to make record election gains. Recent polls show that the SD may win as much as 25% of the vote, earning more seats in the Swedish parliament than any other single party. While neither of the two major political coalitions will ask them to form a government, the Swedish Democrats will have considerable influence over policy in parliament. SD leader Jimmie Åkesson is already making EU leadership nervous, as he has said he will push for a Swedish referendum on EU membership.
- The Swedish krona (SEK) is under assault. At the end of August, currency traders pushed the SEK down to a nine-year low versus the EUR. So far this year, the SEK has fallen in value by 8% versus the EUR, and 10% versus the USD. It now ranks as the world’s worst performing major currency. Sweden’s stock market has become the poorest performer among the Nordic countries.
- The largest Nordic economy, Sweden is in the midst of its longest expansion since the early 1980s, with twenty consecutive quarters of growth. Much of that growth can be attributed to the record wave of immigration since 2015, helping drive employment to record highs and public debt to its lowest level since 1977. Sweden is also one of the few countries in the world that has both current account and budget surpluses.
- Sweden’s central bank, the Riksbank, meets on September 6 (three days before the election). The Riksbank has kept its benchmark rate at minus 0.50% since February 2016. It signaled that it will start raising rates toward the end of this year after providing record stimulus (via QE) over the last four years to prevent deflation. Traders put the odds of a rate hike at September’s Riksbank’s meeting at near 0%, but much higher odds for a hike at either the October 23 or December 19 meetings.
Sweden has a strong economy. A far-right, anti-immigration party gaining ground within the government is nothing new in Europe. Traders and investors should not be panicking out of Swedish assets, whatever happens in the election. Having said that, Sweden’s tradition may be seriously tested this time around.
The US dollar’s uptrend this year against foreign currencies remains intact. However, in the case of the Swedish krona, the move seems overextended both from a fundamental and technical perspective. Those firms with expenses or liabilities denominated in SEK (effectively short SEK / long USD) should consider reducing their currency exposures. Hedging or prefunding an SEK account are two possible approaches to do so.
Contact your SVB FX Advisor for more on this analysis, and for solutions tailored to your needs.
For news on European currency movements before and after the Swedish general elections, read SVB's Daily FX Update.