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FXstreet.com (Barcelona) - Many investors have wondered when the persistent currency appreciation will become a problem for Sweden. This is clearly a very valid question for a country, which is particularly reliant on the export sector. After all, exports constitute 50% of Sweden's GDP, 75% of which stay inside Europe.

According to Research Analyst Chris Walker at UBS, "A strong SEK will undoubtedly act as a burden to some exporters, however rapid 'servicification' of the manufacturing export sector, lower corporate hedging ratios and a relatively tolerant central bank lead us to believe that current SEK strength will probably be sustained." After all, relative to other export-sensitive countries, Sweden has a competitive, productive and diverse export base, which leaves it better positioned to tolerate currency strength.

"In any case, exporters may have little choice in the matter - non-trade related balance of payment flows, correlation breakdowns, and a wider context of limited (low risk) yield also point towards further structural inflows into the country. Sweden's international investment position remains negative but is moving in the right direction towards that of a traditional safe-haven country such as Japan or Switzerland. In light of these structural changes to the currency we see scope in tactically selling EUR/SEK volatility (implied volatility is now at yearly highs) while expecting EUR/SEK spot to push lower or at least consolidate around current levels." he adds.

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