Swedish krona erases gains following PM Lofven’s ouster

10:26 25 September 2018

Summary:

  • The Sweden’s parliaments votes to oust the incumbent PM Stefan Lofven

  • The outlook for Swedish politics remains blurred

  • SEK remains barely moved as PM ouster was highly anticipated

The Swedish parliament voted out the incumbent Prime Minister Stefan Lofven in the voting held earlier on Tuesday but the keona remained little changed as the move was broadly anticipated and it brought nothing in terms of the political scene clarity. The parliament voted 204 to 142 against Mr Lofven forcing him to step down. However, it will not happen immediately as he is expected to continue as caretaker Prime Minister until a new government and thereby PM is decided on. What will happen next for Swedish politics?

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It needs to be said that the four-party Alliance and Sweden Democrats elected a new speaker on Monday, Andreas Norlen, who would start on Thursday. Now it’s his turn to hold talks with all parties and choose these which will be able to form a coalition. According to election rules the speaker will have four chances to choose a party which will be then legally allowed to attempt to form a coalition. If all attempts end up with a debacle, then new elections will be held. Even as Sweden has never gone beyond round one, this could change this time as neither party has enough power to create a new government on its own and neither of the main blocks intends to govern with the Sweden Democrats too. That said, we think that an impact on the Swedish krona should be limited for a simple reason. While negotiations always create uncertainty it is worth noting that from the economy’s standpoint neither party seems to be a threat as all major blocks vowed to keep fiscal discipline. If so, it would result in subsequent budget surpluses contributing to a decrease in public debt as well. Therefore, we reckon that monetary policy should outweigh the political stalemate in seeking to form a new government, increased volatility in the short-term cannot be ruled out though. Keep in mind that a new budget bill needs to be voted until 15 November but so far it looks that no party holds enough support to do so.

Assuming that the US dollar could struggle in the upcoming weeks (the reasoning behind such thinking are midterm elections in the US in November as Trump may be less active at a field of trade policy until then), the USDSEK may take an attempt to break though 8.80 sustainably. Looking at the weekly chart one may notice that the nearest support stands at 8.53 followed by 7.88 but there is a long way off before the market moves there. Source: xStation5

This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

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