Rabobank’s Jane Foley highlights that the Norwegian Krone (NOK) remains one of the strongest G10 currencies in 2024, having appreciated approximately 6.85% against the Euro (EUR) since the start of the year [1]. However, a softer-than-expected June CPI inflation print has tempered market expectations for further monetary tightening by Norges Bank, despite a recent 25 basis point rate hike in May that brought the policy rate to 4.25% [1].
Following the softer inflation data, market pricing now reflects only 17 basis points of additional rate hikes over the next six months, indicating a significant re-evaluation of the likelihood of further policy tightening [1]. This shift in expectations has led Rabobank to forecast that the EUR/NOK exchange rate will remain close to the 11.00 level over the next one to three months, with potential for range-bound trading in this period [1].
Looking further ahead, Rabobank anticipates that the EUR/NOK pair may find fresh momentum to move lower on a six-month horizon, suggesting a possible strengthening of the NOK relative to the EUR if current trends persist [1]. The analysis underscores that, despite recent hawkish messaging from Norges Bank, the market is now more cautious regarding the prospect of additional rate hikes due to the softer inflation outlook [1].
CONCLUSION
Softer Norwegian inflation has led to reduced market expectations for further Norges Bank rate hikes, keeping the EUR/NOK exchange rate near 11.00 in the short term. Rabobank expects range-bound trading in the coming months, with potential for NOK strength to resume over a six-month horizon. Market sentiment remains cautiously optimistic but tempered by inflation data.