By Saikat Chatterjee

LONDON, (Reuters) – Some traders are considering selling Sweden’s crown to make the next major short European trade. This is amid increasing economic headwinds as well as a new coronavirus variant.

Since the Omicron variant was discovered, the currency of an export-oriented country has shown unusually high risk sentiment.

In November, the crown suffered a more than 5% decline compared to the greenback. This was at a moment when the euro rallied due to short-position covering by hedge funds. These funds had previously increased their short bets on single currency.

The November drop makes it the worst-performing developed currency this year. According to Refinitiv data, its decline of more than 10% was worse than the Japanese yen.

“Short-SEK Trades might have been an increasingly popular proxy to bet against EU Sentiment” ING strategists stated in a note. Referring to the popular name of the crown, they wrote that short-SEK trades could have become more popular.

Goldman Sachs, NYSE:), lowered its outlook for the US dollar against the crown over the next 3 months by over 4 percent this week. A Citigroup (NYSE: ) The European Economic Surprise Index has been underperforming its counterparts in the U.S. since September.

Kenneth Broux is a currency strategist at Societe Generale, (OTC) in London. He has analysed currency market trends starting March 2020. The crown shows a higher degree of volatility and sensitivity than other currencies, like the Australian dollars, which makes it attractive for short-sellers.

The combination of high market sensitivity and falling expectations about central bank rate rises in the coming 12 months is creating a problem for the crown. This has led to risk reversals, a ratio that favors bullish over bearish currency bets – which are trading at their highest level since January.

“Classically the Swedish kroner (crown) is, and I’m an old foreign exchange trader, something I would short if I’m short global growth, and in particularly if I’m short European growth,” said Steen Jakobsen, chief economist at Saxo Bank.

SEK: https://fingfx.thomsonreuters.com/gfx/mkt/gdvzymyobpw/SEK.JPG