Scandinavian currencies have taken over the Swiss franc’s mantle of haven currencies of choice following the Swiss National Bank’s decision to attempt to put a ceiling on the value of the franc.
Investors concerned over the economic and fiscal problems in the world’s large economies flocked to the relative safety of the Norwegian krone and the Swedish krona after the SNB choked off haven flows into its currency on Tuesday, imposing a 1.20-franc limit on the currency’s strength against the euro.
The yen, which like the franc has been seen as a haven by currency investors, weakened as investors bet that authorities in Tokyo could follow Switzerland’s lead and intervene to weaken their currency.
Since the SNB announced its move on Tuesday, the Norwegian krone has climbed more than 2.5 per cent to hit an eight-and-a-half-year high of 7.4825 kroner against the euro, while the Swedish krona has gained 2 per cent to a three-month peak of 8.9420 kronor.
“It’s an early indication that investors may flock to the fiscally sound Scandinavian currencies in search of alternative safe havens,” said Lee Hardman, analyst at Bank of Tokyo-Mitsubishi UFJ.
“However, both of these currencies face a greater risk of local authorities becoming more sensitive to domestic currency strength as they are both small and relatively open economies similar to Switzerland.”
Scandinavian currency bulls have been reassured by the reaction of central banks in Norway and Sweden. The Norges Bank, Norway’s central bank, while acknowledging the krone’s rise since the SNB’s action and stating that liquidity in the currency was too low for it to be considered a haven, dismissed speculation that it would follow Zurich’s lead and intervene to weaken its currency.
“We have a policy based on not intervening. That remains,” said Øystein Olsen, Norges Bank governor, on Wednesday.
Meanwhile, Sweden’s central bank surprised investors after its policy meeting by indicating that interest rates in the country were likely to rise by the end of the year, a marked contrast to the situation in other developed economies.
Steve Barrow, analyst at Standard Bank, said that the Norwegian krone was likely to become the haven currency of choice now that the Swiss franc had been taken out of the equation, given the Swedish krona’s greater sensitivity to equity markets and concerns over global growth.
“We see sense in this,” he said. “Norway’s fiscal position is superb, the economy is doing okay, the krone does not move with equities and it’s not at risk of quick monetary easing.”
Mr. Barrow said the krone was likely to advance even if the Norges Bank did begin to voice its discomfort over the strength of its currency.
“Words were never enough to stop the Swiss franc’s strength and we doubt that it will be any different for the krone. We target an eventual move to the 7.0-kroner region against the euro.”