The ECB needs to learn from the Riksbank and become far more vocal about the threat posed by a strong currency to its inflation mandate. The link between a rising EUR and the rising probability of an offsetting monetary policy reaction needs to be made clearer and more credible. After all, like the ECB, the Riksbank does not target a specific level of the exchange rate or use it as a direct tool of policy. But there is a far greater willingness in Sweden to acknowledge that the currency could de-rail their forecast of rising inflation. An additional rate cut would be the likely and immediate response to any significant SEK strengthening. The ECB would do well to convince the markets of a similar trade-off if they do not want the EUR to thwart their inflation mandate.
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