G10: SEK the most vulnerable, even more than EUR for Eurozone politics - ING

Petr Krpata, Chief EMEA FX and IR Strategist at ING, suggests that within the G10 FX space, it is not the EUR which looks the most at risk.

Key Quotes

“While EUR/USD is likely to come under pressure should the market start pricing in a higher probability of a non-market friendly outcome from EZ elections, the Scandinavian currencies (NOK and SEK) look more vulnerable given their high direct economic linkage to the EZ and the history of underperformance during times of EZ political stress. Needless to say, the low liquidity of Scandinavian currencies does not help in times of stress.”

“Not surprisingly, JPY should be the go-to currency as safe haven flows tend to favour the resilient and economically much less vulnerable (to EZ spill overs) Japanese yen.”

“When EZ and EUR suffers, GBP benefits. This has been the case during the multiple Greek crises and helped GBP late last year during market concerns about the Italian banking sector. If history repeats itself, then GBP may get some respite from Brexit woes.”

“Despite having high beta, the dollar bloc commodity currencies (CAD, AUD and NZD) are unlikely to be the worst G10 performers due to their lower direct linkages to the EZ economy as well as the lack of negative EUR/USD spillover (ie, lower EUR/USD not directly affecting the dollar commodity currencies). Nonetheless, they are unlikely to do well against USD as the potential negative spillover effects into global risk sentiment would take a toll on these currencies.”