The wave of artificial intelligence (AI) investment is making its mark on the European foreign exchange market for the first time, with analysts predicting that the Swedish krona and British pound are likely to benefit the most. Although the forex market, which sees daily trading volumes of up to $10 trillion, has largely been affected by a weak dollar this year—stemming from concerns over tariff policies and expectations of rate cuts in the U.S.—a closer inspection reveals that the AI trend, which has propelled stock markets to new heights, is generating ripples in currency markets.
According to analysis by JPMorgan, the recent resilience of the Swedish krona and the British pound can be partly attributed to technology-driven investments. In terms of AI investment assessment, both Sweden and the UK have stood out, allowing their currencies to gain growth momentum, albeit still modest. As reported by the Stanford University AI Index, the UK and Sweden attracted over $4 billion in private AI investments last year, ranking third and fourth among beneficiary countries, trailing only behind the U.S. and China.
So far this year, against a backdrop of a weakening dollar, the Swedish krona has emerged as the strongest major currency in Europe, appreciating nearly 15%, while the British pound has gained about 7%. However, analysts stress that accurately quantifying the impact of AI on exchange rate fluctuations remains challenging due to other prevailing factors such as interest rate expectations and fiscal concerns (which significantly affect the pound).
Jane Foley, head of foreign exchange strategy at Rabobank, noted, "There have been numerous AI investment plans announced directed towards these two countries. These foreign investments are likely to boost demand for both the pound and the Swedish krona, thereby enhancing the resilience of both currencies." The Swedish krona has strengthened against the euro and other Nordic currencies, while the pound has seen declines against the euro and the Swiss franc due to fiscal concerns. Foley further explained that investments in Swedish AI companies would increase market demand for the Swedish krona, leading to a significant appreciation of its exchange rate; however, the impact on the pound would be less pronounced as its trading volume is already substantial.
Data from the Bank for International Settlements shows that the pound accounts for slightly over 10% of global trading, making it the fourth most traded currency, while the Swedish krona accounts for less than 2%. Last month, the UK and the U.S. reached a significant investment commitment, where leading U.S. firms, led by Microsoft (MSFT.US), pledged to invest £31 billion (approximately $42 billion) in the UK. AI giant NVIDIA (NVDA.US) plans to provide its data center platforms to Swedish companies such as Ericsson (ERIC.US) and AstraZeneca (AZN.US). Microsoft, Meta (META.US), Google (GOOGL.US), and Brookfield Asset Management (BAM.US) from Canada also plan to build data centers in Sweden, drawn by the country's stable power supply and robust infrastructure.
Analysts emphasize that it is still too early to determine how AI will affect economic growth or unemployment rates—these effects may potentially exacerbate public finance pressures in the future. However, the related investment commitments have provided a favorable environment for the Swedish krona and the pound. A report released earlier this year by Sweden's Nordea Bank indicated that net long positions in the Swedish krona among major forex market participants were nearing historical highs. Kenneth Broux, head of foreign exchange and interest rate research at Societe Generale, stated that commitments to technology investments by U.S. companies help alleviate market pessimism regarding the UK's November budget (which is expected to raise taxes), subsequently enhancing the attractiveness of the pound.
Recent data from the Commodity Futures Trading Commission shows that investors have a neutral stance on the pound, neither significantly bullish nor bearish. Speculators' positions on the dollar versus the pound have decreased from nearly $3.3 billion in August to only $165 million, indicating waning confidence in the continued rise of the dollar against the pound. Broux mentioned, "What AI might change is the outlook for productivity growth, which has been the 'Achilles' heel' of the UK economy." He added that the aging population in the West presents opportunities for "skills retraining and upskilling," helping to manage the potential increases in welfare spending and unemployment benefits that could result from AI development.
Some institutions hold an optimistic view of the pound overall. Investment firm St James's Place has a bullish stance on the pound; Deutsche Bank expects the pound to rise to 1.45 against the dollar over the next few years, up from the current rate of about 1.34. Willem Sels, Global Chief Investment Officer at HSBC Private Bank, noted that while he is not optimistic about the pound's short-term outlook given the upcoming budget, he perceives that investor sentiment toward the UK is more "constructive" than it appears on the surface. Sels stated, "One of the reasons is that people consider the UK to be one of the ideal destinations for AI-related investments." "This is precisely why we see NVIDIA's CEO Jensen Huang sitting next to Prime Minister Keir Starmer, discussing the advantages of development in the UK."