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NOK and SEK Eye Trump and Xi Meeting at G20, Rising Brexit Risks

NOK and SEK Eye Trump and Xi Meeting at G20, Rising Brexit Risks

Dimitri Zabelin, Analyst
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  • Krona and Krone brace for G20 summit in Osaka, Japan
  • Nordic economies remain susceptible to external shocks
  • Uncertainty over Brexit unnerving Swedish policymakers

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The Swedish Krona and Norwegian Krone will be closely watching the outcome of the G20 summit this weekend in Osaka, Japan. Market participants will be keeping a particularly close eye on side-talks between US President Donald Trump and his Chinese counterpart Xi Jinping. The uncertainty may create higher-than-usual volatility against the backdrop of increasing uncertainty about Brexit and the race for Prime Minister.

The Group of 20 meeting will start on June 28 and conclude on the following. Besides the main event schedule, the gathering will include high-level peripheral talks between various heads of state. One meeting which may gain an unexpectedly high amount of attention will be between Indian Prime Minister Narendra Modi and Trump. Tensions between Washington and New Delhi flared up as the two are entering what could be a small-scale trade war.


Nordic economies will also be waiting for the release of several key US indicators. These include US consumer confidence, durable goods orders and GDP data. For almost six months straight, economic publications out of the US have been underperforming relative to economists’ expectations. This suggests that analysts are overestimating the actual health of the economy.

At last week’s FOMC meeting, while the Fed maintained its neutral stance, the tone and outlook shifted to a more cautious neutrality as weakening inflation and economic data had eroded the hawks’ case. Market participants are expecting three rate cuts this year, with the soonest occurring at the meeting in July. The disjunct between investors’ expectations and reality may cause markets to jolt.

US Dollar Breaks 13-Month Rising Support as Markets Price in Rate Cut Rampage

Chart Showing US Dollar Index


Meanwhile, the race for the position of UK Prime Minister continue with Boris Johnson in the lead. Last week, Bank of England Governor Mark Carney alluded to rising downside risks to the global economy and a higher perceived probability of a no-deal Brexit. At a time when global growth is showing increased fragility, the economic and financial shock of such an event could significantly disrupt markets.

Outward-facing economies like Sweden and Norway will be particularly vulnerable because of their strong reliance on healthy global demand and a stable international trading paradigm. In the IMF’s report on Sweden’s financial system, analysts concluded in their risk assessment that “uncertainty during post-Brexit negotiations could weigh on confidence and investment”. Swedish policymakers have reiterated this concern.


Last week, European Central Bank President Mario Draghi participated in a symposium in Sintra, Portugal, where he alluded to future rate cuts and re-introduction of QE if economic growth prospects deteriorated. In addition to the Euro tumbling on the news, investors began to further question the future of Europe’s economic growth and projects for inflation. That same week, 5Y5Y Euro inflation swap forwards reached a new low.

In Sweden, a dormant financial crisis may be awakened if the global economy takes a sharp downturn. Over a decade of ultra-low rates has led households to borrow hand-over-fist because the cost of capital was so low. Rising household indebtedness and exposure to a decline in housing prices is a growing concern among policymakers and the IMF. Growing debt-to-income ratios are causing officials to get hot under the collar.

The IMF wrote: “Given the high interconnectedness among the Nordic-Baltic financial systems, such a shock could have significant cross-border spillovers.” Meaning, a financial meltdown in Sweden would not be contained. It could even reverberate into Europe and weaken the already-battered economy. In a globalized world, it is becoming increasingly difficult to isolate crises to one area, especially with the sheer size of Sweden’s financial system relative to their economy.


--- Written by Dimitri Zabelin, Jr Currency Analyst for

To contact Dimitri, use the comments section below or @ZabelinDimitri on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.