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Norwegian krone likely to outperform euro, EUR/NOK to trade around 9.20 by end-2019

Resilient Norwegian economic data, diverging interest rate differentials in favour of the krone and a surge in oil prices, combined to push EUR/NOK from its September highs back towards its medium-term range lows, noted Lloyds Bank.

Nevertheless, NOK strength has faded in recent weeks as oil prices pulled back from their highs. Still, the Norwegian krone is likely to outperform the euro. During its September meeting the Norges bank hiked its Deposit rate by 25 basis points, to 0.75 percent.

And, with consumer price inflation currently well above the central bank’s target, monetary conditions are expected to be tightened further, stated Lloyds Bank. Given that the ECB is unlikely to hike policy rates until the second half of 2019, there is scope for the differential between Norwegian and European government bond yields to widen from here, which should put further downward pressure on EUR/NOK. Furthermore, political risks in the heart of Euro continue to pressure the euro.

“All considered, we forecast EUR/NOK at 9.20 by the end-2019”, added Lloyds Bank.

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