Iceland Krona may fall further

In January, a credit rating agency pronounced Iceland’s current account deficit unsustainable, arguing Iceland’s currency, the Krona, would need to depreciate significantly in order to shift the balance of trade back in favor of Iceland. In a follow-up report, the rating agency provided more context for its earlier comments, by identifying growing levels of Icelandic debt and surging imports. Economists have been quick to point out that similar crises in Turkey and Thailand ultimately drove 50-60% decreases in the value of their respective currencies. The Financial Times reports:

Two notable sell-offs in the krona in the last month have presaged wobbles in other emerging currencies and there were signs again of weakness…in the currencies of countries with large current account deficits.

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