EUR/NOK expected to edge higher medium term – Danske Bank

Analyst Kristoffer Lomholt at Danske Bank sees the Norwegian krone losing ground in the medium term.

Key Quotes

“NOK rates have risen substantially over the past month, driving a significant NOK appreciation. While higher NOK rates partially reflect markets pricing out the probability of Norges Bank delivering its ‘promised’ rate cut in September – on the back of house price and CPI inflation surprising on the upside – the move also reflects upward pressure stemming from tight NOK liquidity and a high ‘USD shortage’ premium”.

“As such, we think it is premature to rule out short-term easing from Norges Bank and expect it to address liquidity directly and/or cut rates in September. Indeed, Norges Bank is aware that keeping policy unchanged would implicitly ratify the Nibor-based monetary tightening, triggering additional NOK strength (see Norges Bank Dilemma, 12 August). Therefore, we see risks asymmetrically skewed towards a higher EUR/NOK after the latest fall”.