Market flush with Latvian "immediate" devaluation rumours

* Latvian devaluation rumours

The Latvian devaluation rumours have been triggered by articles going back since this Monday. They have mainly touched on the subjects of Latvian politicians realising that the game is up, the Central bank governor Ilmar Rimsevics two interviews where he has suggested that vouchers would be introduced as payment for public employees. Central bank governor Ilmar R.;s statements really made me sit up and take notice.

This is exactly what happened during the Argentinian crisis, where they simply ran out of currency reserves as the ARS peg, tied to the Usd, was being defended. Patacónes, Lecops, Créditos, Argentinos and lots of other bits of pieces of scrip. In Argentina this was the beginning of the end for the fixed currency regime.
There are reasons to believe this is also the case in Latvia.



*Swedish preparations
Swedish authorities also seem to be on full alert that some "big" event is around the corner.
The Swedish Centralbank replenishing their FX reserves by 100 Bn SEK. the Swedish Finance minister and Financial market minister declaring they are "ready" for any events, including devaluation, in the Baltics.

The Swedish bank CEO of SEB, Annika Falkengren, declaring that a Baltic devaluation will not mean more creditlosses in total for SEB. I think she knows the game is up.
I still believe there might be a try with the ERMII, (+-15% around a midrate) but the real float should come not too much longer after that.



* LVL FX forward pricing - not indicating any imminent devaluation, makes the long LVL FX forward a very attractively priced digital option.

The only thing that seems a bit odd at the moment is the fact that the cost of buying FX LVL forwards have not really skyrocketed on shorter maturities (up to two months). Albeit higher, they are still to be considered as good value options.

This bit of the puzzle does make me wonder since it would make sense that the market had the absolute best information on this subject.
A bit of a turnoff for any imminent devaluation idea. However, it is still a very attractive digital option to own.



*New positions and positionchanges
None




As usual, good luck




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