The start of the new week has been fairly quiet in the currency market, while the stock market has largely seen declines (Europe and Asia). On the other hand, considerable movements are seen in currency pairs linked to the Norwegian krone. It is worth noting that the Norges Bank will be making its interest rate decision this Thursday. Despite all economists pointing to a 25bp hike, there have been expectations that the Norges Bank would end the hike cycle, leading to a weakening of the NOK
The central bank's survey indicates that economic growth will slow to 0.1% in Q4 from growth of 0.3% in the current quarter. Employment in the country continues to grow, but wage growth is declining quite markedly. A slowdown in the country's property market is also evident, which could provide grounds for keeping rates unchanged. A key factor indicating that there is no need for a hike is the marked fall in inflation for August. Inflation fell to 4.8% y/y from 5.4% y/y, with a fall to 5.3% y/y expected. This is the lowest inflation reading since March last year.
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It is worth mentioning that Norges Bank hikes have been ongoing since September 2021. The current level of the main rate is 4.0% and the consensus of economists on Bloomberg points to 4.25%. In addition to the mere rumours of a possible pause, there are concerns that Norges Bank may present similar rhetoric to the ECB, which would be seen as a 'dovish hike'
In terms of the exchange rate, it is worth noting how strongly the EURNOK exchange rate has diverged with the oil price (inverted axis). However, should Norges Bank decide to hike, the pair is near a very important resistance associated with the local highs of August and the 50.0 retracement.