Norwegian Krone: Dovish turn risks NOK appeal – Societe Generale
Societe Generale notes Norway’s central bank kept its policy rate unchanged at 4.25% and softened its hawkish tone. The bank still anticipates one further rate increase, but removed explicit guidance for a near-term hike.
Societe Generale reports that Norway's central bank maintained its policy rate at 4.25% and moderated its hawkish outlook. The central bank still expects one more rate hike, but removed specific expectations of a near-term increase. With upcoming forecasts due in September, the report cautions that a more dovish stance could make the Krone less appealing to investors.
The bank no longer explicitly stated when a rate hike might occur, instead noting that it "may still become necessary to raise the policy rate." While inflation has slowed and is lower than projected this summer, it remains too high, and early conclusions about changing inflation trends are premature. New forecasts will be released in September.
The NOK's 2-year UST/NGB spread has widened by 4.4 basis points, taking away tactical support for the currency. The AUD and CAD are leading gains, while the NOK is the only currency that has widened the spread. GBP/USD is gaining momentum, moving closer to a three-month high near 1.3560 after three consecutive daily drops. EUR/USD has also advanced, reaching the upper 1.1500s for the first time since mid-June.
The US Dollar's sharp decline is fueled by anticipation of easing Fed interest rate hikes and ongoing tensions in the Middle East. Gold prices rebounded to around $4,400 per troy ounce, reversing a previous day's decline amid weakening US Dollar expectations and the ongoing Middle East situation.
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