EUR/NOK likely to trade around 9.30 by end-2018 – Lloyds Bank

The EUR/NOK pair rose to 9.60 in early July as Brent crude prices dropped sharply from USD 82/bbl. Nevertheless, the ability of the euro to sustain gains against the Norwegian krone is doubtful, noted Lloyds Bank in a research report. As its latest policy meeting, the ECB clarified the significance of its statement that rates would remain on hold “through the summer” of 2019, implying its tightening cycle would likely commence after August 2019.

This triggered a ‘dovish’ reaction in the market. And with a quarterly growth rate of only 0.3 percent in the second quarter and ‘core’ inflation still subdued, it is tough to see this expectation moving forward. Despite the recent sluggish performance of its economy, the Norges Bank is still likely to tighten policy imminently, with Governor Olsen suggesting policymakers would be prepared to hike rates “after the summer”. Interest rate differentials thus argue for a decline in EUR/NOK.

“We are forecasting 9.30 by end-2018. The key risk to our forecast is a significant and sustained fall in the oil price”, added Lloyds Bank.