EUR/NOK to edge lower to 11.20 on a three-month view – Rabobank

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After a poor performance last year for the currency, the Norges Bank will likely be satisfied that the NOK appreciated vs. the EUR following its decision to hike rates by 25 bps to 4.5% on December 13. Economists at Rabobank analyze Krone’s outlook.

NOK to find some support as the market adjusts to a more cautious Norges Bank

Given its focus on the exchange rate, we would expect the Norges Bank to follow the ECB in cutting rates this year. That said, the combination of the decline in core inflation and the stronger value of the NOK in recent weeks has allowed the market to re-price the start of the Norges Bank rate cutting schedule.

Last month the Norges Bank indicated that the policy rate would remain at 4.5% until the autumn before gradually moving lower. Currently, the market is priced for rates around 35 bps lower on a six-month view. We see this as overdone and look for the NOK to find some support as the market adjusts to a more cautious Norges Bank.

We expect EUR/NOK to edge lower to 11.20 on a three-month view.

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