Scandis Under Pressure from Brexit, but Risk Appetite Coming Back

aversion generated by the Brexit vote has seen Scandinavian currencies more
than others coming under pressure along with sterling.

particular, the Norwegian krone and Swedish krona have been hit by the downward
trend. However, market analysts contacted by P&L suggest the move might not

“The NOK
acted similarly as other ‘risky’ currencies after the Brexit vote – went down
as risk aversion took over,” says Aurelija Augulyte, senior analyst at Nordea.

“NOK is
very much driven by oil, too, and oil prices fell on the Brexit vote,” she
says, adding that “SEK is in a similar situation” as “risk aversion hits it”.

“There are some
lingering concerns that the Norwegian economy could face downside pressure if
the UK did truly withdraw from the European Union,” says Jameel Ahmad, chief
market analyst at brokerage ForexTime. “Moreover, the more recent news that
there could be a potential oil worker strike in Norway will also more likely
than not trigger further volatility in the krone.”

the trend might be reversing.

“If you
look now, the NOK is actually recovering – almost halfway back to pre-vote
levels” for USD/NOK “as the Brent oil prices have risen to back to above $50/bbl”,
Augulyte adds.

“The Norwegian krone
has taken back its losses versus the euro since the Brexit vote and is
unchanged relative to the range in recent weeks,” agrees SaxoBank’s head of FX
strategy, John Hardy.

“The fact that risk
appetite has come back so strongly in asset markets since last Friday and the
oil price is bobbing back above $50/bbl has the market skeptical on the wider
fallout of Brexit outside of the UK and to a smaller degree, Europe, and happy
therefore to stay neutral to positive on NOK,” he explains.

“NOK has actually been a net beneficiary of
Brexit, with some safe haven inflows into NOK, while the commodity price rise,
oil in particular, has also helped,” says Tobias Davis, head of corporate treasury
sales at Western Union Business Solutions.

“EUR/NOK is roughly 1.5% lower since it
stabilised last Friday,” he adds.

Meanwhile, for
Sweden’s krona, “fears of a modest growth impact on Europe” might be playing a
role in weighing on the currency, “as Sweden’s economy is quite leveraged to
Europe’s via exports”, says Ahmad.

On the other hand, “as
an economy that is performing very strongly, if you just look at GDP
performances, there is an argument to say that the Swedish krona is currently
undervalued,” adds Ahmad.

“The only issue with
this view is that the economy is unfortunately still plagued by low levels of
inflation, which has encouraged the Riksbank to maintain currency weakness in
the form of easing monetary policy,” he says.

Beatrice Bedeschi



Galen Stops

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