How will Sweden’s Election Affect GBP/SEK? Volatility Forecast for Pound Swedish Krona Exchange Rates

Swedish Krona (SEK) Exchange Rates Steady Ahead of Swedish Election

Broad based weakness in the Swedish Krone (SEK) has prevented it from capitalising against the Pound’s (GBP) ongoing Brexit uncertainties this week, with investors hesitant to move too much on the Swedish Krona ahead of this weekend when Sweden will be going to the polls for its 2018 General Election.

GBP/SEK may have been pushed even lower last week, but Krona investors are anxious about uncertainties in the Riksbank’s monetary policy outlook, as well as the sizeable political uncertainties surrounding the upcoming election.

The election is on a knife edge, with polls indicating that neither of Sweden’s two major coalition blocs are likely to win a majority in Sweden’s system of proportional representation.

This has heightened concerns that Sweden’s upstart political party, the Sweden Democrats, which is standing on an anti-immigration platform, could win enough seats to enter a coalition and steer the direction of government policy. Currently, polls show that they are likely to win 20% of the vote.

Analysts have speculated that if the polls are correct the situation may become similar to that of Germany’s prolonged coalition talks following the 2017 election in Germany.

In light of all this uncertainty, Sweden’s national bank, the Riksbank, said this week that it is pushing back the timing of its first interest rate hike since 2011.

As it stands, the bank envisions a 25 basis point rate hike in December or February, dimming market hopes for a 10 basis point hike as soon as October.

Pound to Swedish Krona Exchange Rate Climbs from Half-Month Low on Brexit Controversy

Despite those broad uncertainties about this weekend’s Swedish election, and news that the Riksbank may have delayed its plans to hike Swedish exchange rates, the Pound Sterling to Swedish Krona (GBP/SEK) exchange rate is still on track to see losses this week.

Since opening this week at the interbank level of 11.87kr, GBP/SEK has been trending with a downside bias. GBP/SEK hit a half-month-low of 11.65kr on Wednesday, but at the time of writing on Friday had recovered to around 11.77kr.

The Krona (SEK) is still on track to sustain gains versus the Pound (GBP), as Brexit-related controversy made it easy for currencies to gain against the Pound at the beginning of the week.

Investors will likely wait until Monday, when the results of the Swedish election are known, before making any more moves on the currency.

Pound (GBP) Exchange Rates Steady as Investors Digest Week’s Brexit News

Fears that a ‘no-deal’ Brexit was still highly possible briefly rose at the beginning of the week, causing the Pound (GBP) to reverse some of its recent gains. It was due to perceived disagreements over the UK Brexit plan between UK and EU negotiators.

In the middle of the week, the Pound found some fresh support due to a report claiming that officials from the UK and Germany were willing to drop key demands from negotiations – in order to make sure a deal is met.

German officials allegedly said they were willing to accept a less detailed deal and while this news was seen more as delaying the need for a detailed deal than actually offering any clarity, it doused ‘no-deal Brexit’ fears and helped the Pound to recover.

GBP/SEK has been edging higher since then and its gains were made easier by political and Central Bank uncertainties in Sweden.

However, Sterling’s gains were ultimately too limited to cause GBP/SEK to recover all its weekly losses, and this week’s UK data was too underwhelming to offer the Pound much support either.

Pound to Swedish Krona (GBP/SEK) Outlook: Swedish Election, Swexit fears and Bank of England (BoE) Decision will Drive Movement over the Coming Week

The results from Sweden’s general election will be known by Monday, and any upsets to the status quo have the capacity to substantially drive GBP/SEK movement.

Political stalemate or the Sweden Democrats taking the role of kingmaker would be the most likely factors to cause Swedish Krona weakness.

As results come in investors will be paying close attention to which parties are most likely to join up to form a coalition big enough to come into power.

There are concerns that if the Sweden Democrats gain enough influence, they could force a referendum for Sweden to exit the EU – a term coined ‘Swexit’.

In terms of GBP Monday will see the publication of Britain’s Gross Domestic Product (GDP) figures from July, with UK job and wage stats to follow on Tuesday.

Of course, Thursday’s Bank of England (BoE) policy decision could also prove highly influential for the Pound to Swedish Krona (GBP/SEK) exchange rate, especially if the bank adopts any unexpected changes in tone regarding Brexit plans or the monetary policy outlook.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard