The Norwegian krone has been on the back foot since trading at a multi-year low around 8.80 against the euro in mid-February, pushing towards 9.60, noted Lloyds Bank in a research report. The move has taken place against the backdrop of subdued oil prices that have dropped about 13 percent from their high in late May.
A weaker inflation outlook and an associated paring back in interest rate expectations have also impacted. In the near-term, the krone should be supported by the prospect of a consolidation in the oil price at its range lows and a relatively stable risk environment, stated Lloyds Bank.
Furthermore, the PMIs in Norway are in expansionary territory and the jobless rate has dropped to just 2.6 percent. In the quarters ahead, a rebound in investment should result in faster GDP growth, and consequently, waning expectations of a loosening in monetary policy.
“Overall, we believe the krone remains fundamentally undervalued and look for EUR/NOK to decline towards 8.80 by the end of the year”, added Lloyds Bank.
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