The Swedish krona has long been undervalued but has recently appreciated significantly against both the dollar and the euro. In the first week of March, the exchange rate for one U.S. dollar dropped from Skr 10.80 to Skr 10.10, while the euro fell below Skr 11 for the first time in two years.

Small currencies are typically disadvantaged in turbulent times, but that is not the case now. Despite increasing geopolitical uncertainty and growing protectionist tendencies in the global economy, the Swedish krona has strengthened.

Sweden’s defense industry, which has been gaining more international attention, is seen as a key explanatory factor. Alexandra Stråberg, Chief Economist at Länsförsäkringar, highlighted this in the morning daily newspaper Svenska Dagbladet on March 6:

“We have a relatively large defense industry and defense exports as a share of GDP, and people believe this will significantly strengthen the Swedish economy. Sweden’s growth is likely to outpace that of the eurozone,” said Alexandra Stråberg.

Strong public finances create opportunities

Sweden’s strong public finances also benefit the krona. The Swedish national debt stands at approximately 16 percent of GDP. Including municipal and regional debt, the total reaches around 30 percent – still exceptionally low compared to other European countries. For example, Germany’s national debt is at 70 percent, while France’s stands at 110 percent.

Erik Hådén, Head of Investor Relations and Macroeconomic Analysis at SEK, points out that Sweden’s strong public finances also provide significant opportunities for the defense industry:

“With the major defense investments that will take place in Europe, Sweden is in a better starting position than other countries. Our relatively low national debt means that increased defense spending is not a problem for us. If we allocate an additional 2 percent of GDP to defense over five years, it would, all else being equal, amount to a 10-percentage-point increase,” he explained.

According to Erik Hådén, this is yet another potential reason why the krona has performed relatively well against the euro. Other contributing factors include expectations that the Swedish central bank (Riksbank) will keep its key interest rate unchanged this year, while the European Central Bank is likely to continue cutting rates—making the krona stronger against the euro.

As for the dollar, financial markets now anticipate that Trump’s tariffs will have a greater negative impact on the U.S. economy than previously expected. This has led many investors to move their capital elsewhere, which has been particularly beneficial for the Swedish krona.