Wednesday, September 08, 2010

Possible Shaky Ground For Strong Icelandic Krona

Responding to my request for an explanation of the recent strength of the Icelandic krona despite the very weak Icelandic economy, reader Edward tipped me of this link discussing the Icelandic Krona.

In short, the article says that the ECB might be ready to prop up the value of the Icelandic Krona, something which in itself makes investors demand Icelandic Kronas.

This, along with the general drop in the value of the euro due to worries about government debt in certain euro area countries probably explain most of the recent ISK strength. However, given the increasing popilar hostilty in Iceland to the idea of EU membership (a precondition for support in the long run), the rally looks very shaky.