Rabobank’s Jane Foley notes that softer Norwegian inflation has tempered expectations for further Norges Bank tightening, even after May’s 25 bps hike to 4.25%. With the Norwegian Krone (NOK) still one of the strongest G10 currencies this year, Foley expects EUR/NOK to trade close to 11.00 over 1–3 months before moving lower on a 6‑month horizon.

NOK strength meets softer inflation

"Despite having retraced some of its year-to-date gains last month, the NOK has rallied around 6.85% vs. the EUR since the start of the year."

"Despite the hawkish messaging last month, following the softer June CPI inflation print, the market is only priced for 17 bps of rate hikes on a 6-month view."

"Understandably, the softer than expected release has led to a re-evaluation of market expectations regarding the outlook for policy tightening from the Norges Bank, with forecasts for the next move being dampened."

"On the back of doubts regarding further Norges Bank rate hikes, we expect EUR/NOK to stay close to the 11.00 level on a 1-to-3-month view."

"We see scope for choppy range trading around the 11.00 area on a 1-to-3-month view before EUR/NOK finds fresh momentum to push lower on a 6-month view."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)