A holiday in Scandinavia turns out less favorably.

The Scandinavian central banks will make an interest rate decision next month. It seems only a matter of time before the krone strengthens, but this could turn out less favorably for Dutch holidaymakers.

More and more Dutch people are turning their backs on warm Southern Europe and opting for the cooler north in the summer. Scandinavia has quickly grown into a popular holiday destination. For a long time, this appeal stemmed in part from the relatively weak Scandinavian currency, which made travel more affordable. However, that advantage is now under pressure. The Norwegian krone, in particular, has risen in value over the past few months, making a holiday in Norway more expensive for the Dutch.

More expensive fjords
The revival of the Norwegian krone is closely linked to rising energy prices. Norway is one of the world's largest oil exporters and benefits directly from higher revenues from oil and gas. This inflow of capital strengthens the currency, meaning foreign visitors have to exchange more euros for the same expenses. As a result, a road trip along the Norwegian coast becomes significantly more expensive once again.

Change crowns now or wait a bit?
The Swedish krona is lagging behind for the time being, but it appears to have reached its low point as well. Monetary factors play a major role in Sweden. Investors are looking ahead to the interest rate decisions of the Scandinavian central banks in May. Both the Norges Bank and the Riksbank are in a different phase than the European Central Bank. Inflation in Scandinavia is proving to be more persistent than in the eurozone. This increases the likelihood that interest rates will remain high for longer, which is generally favorable for the currency.

For Norway, this applies in an intensified form. The combination of robust energy revenues and persistent inflation makes it likely that the policy interest rate will remain high for an extended period. With a Norwegian interest rate of around 4 percent compared to an ECB deposit rate of approximately 2%, it is relatively attractive to hold capital in Norwegian kroner. That support is lacking for the Swedish krona, but there too, deferred interest rate cuts are giving the currency some breathing room.

Or would you prefer Denmark?
For holidaymakers, this leads to a classic dilemma: exchange krona now or wait a little longer? If energy prices remain high and Norwegian interest rates stay stable, the krona could strengthen further and delaying would become more expensive. At the same time, currency markets are known for their volatility. A cooling global economy or falling oil prices could actually weaken the krona.

Those wishing to avoid currency risk can turn to Denmark. The Danish krone is pegged to the euro and remained stable even during geopolitical tensions surrounding Greenland. However, chances are you won't be the only Dutch person there: the number of Dutch trips to Denmark increased by no less than 98% last year.

Joost Derks

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

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