Opinion Joost Derks

Affordable vacation in Sweden and Norway

July 10, 2024 - Joost Derks

After a glide in the spring, the Swedish and Norwegian crown have taken a step back in recent weeks. However, the chances are high that the Scandinavian currencies will take a new step back when the political uncertainty in France subsides.

The absence of nice summer weather can be the deciding factor for many Dutch living rooms to head south this summer. But in recent years, vacations to Scandinavia have gained popularity. In August last year, the number of Dutch people vacationing in Sweden was already 37% higher than in 2019, calculated by the travel association ANVR. Norway was visited by almost double the number of holidaymakers from our country compared to four years earlier. An increasing number of people are opting for an active holiday instead of spending a few weeks basking in the sun. Additionally, the Nordic countries have a very practical advantage. There are many more charging points for electric cars than on the roads leading south.

Step back
The currencies of Scandinavian countries usually do not fluctuate significantly against the euro. But in the spring, both the Norwegian and Swedish crown took a step back. An important reason was the prospect that the European Central Bank (ECB) would reduce the policy rate less sharply in 2024 than initially expected. A relatively higher interest rate makes it more attractive to hold financial reserves in euros. On the other hand, Sweden is showing a somewhat faster decline in interest rates. The Riksbank is aiming for two or three interest rate cuts, which will boost the economy. Economic growth has almost come to a standstill and unemployment is at 8.3%.

Overheating in Norway?
That is a big difference with Norway, where only 2% of the workforce is unemployed. Because core inflation is very close to the central bank's target, the policy rate of 4.5% is unlikely to be reduced quickly. This would open the door to overheating of the local economy. A first interest rate cut is likely to come in 2025. Furthermore, the Norwegian crown is benefiting from a reviving oil price. Since early June, the price of Brent oil has risen by almost 15% to $86 per barrel. Norway is one of the top ten oil exporters and the price fluctuations of black gold sometimes have a significant impact on the crown's price movement.

Predictable Danish stopover
August 20 will be an important day for vacationers in Sweden. It is likely that the policy rate will be lowered by 0.25% on that day. It may be advantageous to wait until that day to withdraw Swedish kronor. The Norges Bank will make its decision a week earlier, but little interest rate excitement is expected in that regard. Currency timing is not necessary at all during the stopover in Denmark. This currency traditionally moves very nicely with the euro. In Denmark, you have been getting between 7.4 and 7.5 Danish crowns for a euro for many years.

Joost Derks

Joost Derks is a currency specialist at iBanFirst with over twenty years of experience in the foreign exchange market. This column reflects his personal opinion and is not intended as professional (investment) advice.
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