Currency Outlook for Norway, Sweden

NEW YORK ( BBH FX Strategy) -- The Norwegian krone and Swedish krona are the strongest major currencies Friday, appreciating about 0.85% and 0.6% respectively. While the fundamental justification of the more modest gains in the other major foreign currencies may be more elusive, in the Scandi's case, fundamental developments are supportive.

Sweden reported stronger business and manufacturing confidence numbers earlier this week, but the February retail sales report was a more significant catalyst. Retail sales rose 1.2% in February. The consensus was for a 0.1% rise. The Riksbank's Ekholm suggested Friday the economy appears to have bottomed after a 1.1% contraction in fourth quarter. This week's data seems to further rule out a rate cut in April, which many had previously expected.

If monetary policy may be less accommodative, fiscal policy appears to be a bit looser. The budget authority today revised this year's forecast to a deficit of SEK13 billion from a surplus of SEK1 billion. Similarly, next year is now projected to have a budget deficit of SEK11 billion rather than a surplus of SEK14 billion. As a percent of GDP, this year's deficit is a minor 0.7%, the envy of most of the OECD.

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On Monday Sweden's PMI will be reported and the economic recovery story is likely to be supported. The consensus calls for an increase to 52 from 50.3. If this does materialize, it will be the strongest reading since last June.

The euro has turned lower from the SEK8.96 area tested several times this month. If that marks the upper end of the range, the lower end comes in around SEK8.75 to SEK8.80. The krona's out performance may also depend on the continued lower level of anxiety in the eurozone (which we are not convinced will be sustained) and to a less extent perhaps evidence of a soft landing in China.


There are four new developments from Norway Friday. Individually and collectively, they are positive for the NOK.

First, the March purchasing managers index jumped to 59.7 from a revised 56.7 reading in February (initially 56.9). The market had looked for something closer to 55.