In a true testament to the idea that what was supposed to be “coordinated easing” designed to rescue the world from the deflationary doldrums has morphed into nothing more than a common currency war (figuratively and literally), EURSEK exploded higher on Friday morning after this announcement from the Riksbank:
- RIKSBANK EXTENDS GOVERNOR STEFAN INGVES’ MANDATE BY FIVE YEARS
This is a long, and winding tale and no discussion of the Riksbank is complete without a reference to Paul Krugman. We’re not going to regale you with that here, but for those interested, you can find (much) more in “Albert Edwards, FT’s Katie Martin Take On The Mighty ‘Rikshog’.”
For the purposes of this post, just know that Ingves recognizes that “when you are next to an elephant, you have to be careful.”
In other words, the Riksbank can’t lean hawkish no matter how strong the inflation numbers come in until Mario Draghi starts to lean definitively in the same direction, otherwise, Ingves would risk sending the krona off to the races, which would in turn jeopardize the inflation gains.
So with that, have a look at the reaction in EURSEK this morning when the Ingves news hit the tape:
That’s how you sink a currency without actually doing anything other than keeping your job.