The Swedish krona is the weakest of the major currencies so far this year, having lost more than 10% against the US dollar and about 6.6% against the euro. The main weight arguably was the trajectory of monetary policy. The Riksbank meets tomorrow, but the repo rate is expected to remain at minus 50 bp and the deposit rate at minus 125 bp. A rate hike does not look likely before Q1 19.
Often, it appears that the krona trades like a risk asset. Its correlation, for example, with the MSCI Emerging Markets Index has been among the strongest for the major currencies. On a 60-day rolling basis, the percent change of the krona and the percent change in the MSCI EM Index had the strongest correlation at the end of August in two years.
Sweden holds a national election this coming Sunday, September 9. The last YouGov poll ahead of the election was published today. It showed the anti-EU Democrats as the strongest party. It wants to hold a referendum on its EU membership. The poll also warned that the Greens, part of the governing coalition, may not meet the 4% threshold for parliamentary representation.
The YouGov poll needs to be taken with the proverbial grain of salt. The survey was conducted over the internet with no attempt to offer a random or representative sample. It also contradicts other polls that put the Democrat support closer to 16.5% rather than the YouGov’s 24.8% result.
Even if the YouGov poll exaggerates the strength of the Democrats, they may still play an important role. Neither the center-left (Social Democrats and Greens) nor the moderate bloc (three parties) is polling 50%. At the same time, the major parties have ruled out being in a coalition with the Democrats. Ironically, in Italy, which is the first EU country to elect a populist government (since Greece), the Five Star Movement had shunned coalition partners, but now it is governing with the (Northern) League.
