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| | |-+  SEK: Political scientists will have a field day
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Author Topic: SEK: Political scientists will have a field day  (Read 51 times)
susanaP
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« on: July 25, 2018, 05:33:55 AM »

Martin Enlund, Chief FX Strategist at Nordea Markets, suggests that this year, the Sweden’s parliamentary situation after the election looks more uncertain than ever.

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EUR/SEK has behaved peculiarly in the run-up to the general elections since 1994. For some reason, the cross has zoomed in on 9.20 around respective election dates. At the risk of angering some hitherto unknown spirit, we are going to say that this is i) not more than a coincidence, and ii) it is definitely not going to happen this year.

Swedish elections are seldom interesting for the foreign exchange market. The scope for risk premiums is usually limited, with Sweden being a triple-A country and so on. If a new government were to launch a tax reform or significant fiscal stimulus this could make things interesting, but this does not appear to be on the agenda. Besides, the parliamentary situation after the election looks more uncertain than ever.

There were some minute risk premiums in the SEK ahead of the general election in 2014, but primarily in the days ahead of that week-end. While EUR/SEK gapped a bit higher when trading started after the week-end, the cross quickly fell back to pre-election levels. Not even the government crisis in December 2014 when the Sweden Democrats voted for the opposition budget had much of an effect on the SEK - this was easily overshadowed by developments in sek currency to euro at the time (which in turn was driven by the oil price crash).

This year may be different however. The Social Democratic party is not faring well in the polls and could lose out to the Sweden Democrats as the largest party – a big political upset since the Social Democratic party has been the largest party since the election of 1917.

Political uncertainty and risks of a new election cannot be a good thing should any grey or black swans emerge.
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