Latvia faces a sharp drop in growth and needs new funds from the IMF/EU to help public finances and keep the peg. Sweden is also contributing, as Swedish banks’ face rising credit losses in the region. Market concern over this has contributed to weakening the SEK. EU and Latvia support the peg to keep the door open for Latvia to join EMU, while the IMF has indicated that it prefers devaluation.

- Should we see spillover effects and rising risk aversion, the instant impact on EURSEK could be levels sharply above 11.00 revisited, although other more long-term factors speak in favour of the SEK, says Jonas Thulin, Global FX Strategist at Nordea Markets.

He continues: - Although short-term uncertainty is likely to ease if money from the IMF/EU is granted, Markets will likely keep questioning the sustainability of the Latvian peg longer term.

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