- Central Bank worried about currency getting too strong (as euro weakens and investors seek higher returns).
- So have made (by announcement) policy interest rates more negative (i.e. depositors need to PAY to have their money in banks) hence making krona less attractive for foreign investors.
- Central bank also expanding its bond buying program (QE), i.e. aggressively buying krona-denominated bonds from the market (this results in a flood of krona into the market, hence if anyone wants to own krona, there are plenty available - this is an effective form of currency intervention, but without the Central Bank actually having to be active in the FX market).
- As a huge importer of commodities, when China's growth slows, global commodity prices head lower.
- Results in difficulties for commodity exporting economies (mainly emerging markets).
- Also resulting in increased divergence between US economy and rest of world (US is growing fast and not so reliant on demand from China).
- Having a strong currency (US$ near parity with euro) is nice for the ego - looks good, feels good, but in reality it's a complicated mixed-blessing.
- Structural (permanent-ish) currency shifts can cause problematic imbalances (e.g. if US$ stays strong, US exporters will suffer, US companies with big foreign earnings will suffer, and US trade deficit will balloon).
- Also makes US monetary policy decisions harder, i.e. US growing nicely now so Fed should raise interest rates soon, but if they raise rates, dollar will strengthen further.
- Europe growth slow and US growth solid.
- Europe pushing interest rates lower (QE) and US interest rates expected higher.
- Investors (pension funds, insurance companies and speculators) put their money where yields (interest rates) are higher, so they're moving from euro to US$.
- House prices in Spain are rising healthily again due to economic growth and better credit availability.
- It's a big deal because the 2008 collapse in Spain's housing market triggered the country's economic & financial crisis.
- Good news + seems like Spain will be one of Europe's best performing economies this year.
- Currently at an 11 year low against US$ - bad time for emerging market currencies (weak commodity prices and resurgent US$) but domestic issues in Brazil playing substantial role in sell-off.
- Economy doing badly and fiscal tightening needed, but domestic hostility to austerity.
- Concerns that increasing political uncertainty will undermine president Rousseff's reform program.
- Terribly - currently at an 11-year low.
- US economy strong, european economy weak.
- US interest rates expected to rise mid-year-ish while europe's will remain zero and negative.
- Republicans want greater transparency and allege that Fed's interest rate decisions have become politicised.
- Republicans also want rates to be set by mechanical rules, not opinions.
- Fed Chairman Janet Yellen (Democrat) wants system to stay "as is"
- Monetary policy has been accommodative (i.e. low and even zero interest rates) for a while - but economy now showing consistent signs of strengthening.
- Fed stating now that this consistent growth is likely to start pushing up inflation to their 2% target.
- Translates as Fed preparing markets for possible rate rises soon.
- Greece does not have an actual plan for exiting the euro - this weakens their negotiating position markedly.
- Also, depositors extremely nervous, and Greek banking system will collapse if their negotiating stance is not modified.
- Hence Greek strategy has thusfar failed to challenge German economic orthodoxy.