Norwegian Krone: Norges Bank hike supports currency – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad highlights that the Norwegian Krone (NOK) outperformed after Norges Bank delivered a hawkish 25 basis point hike to 4.50%. Haddad signaled willingness to raise rates further if inflation warrants, with its forecast implying a 40% chance of another move to 4.75%. BBH adds Norway’s energy exposure remains a key tailwind limiting USD/NOK upside.

Hawkish hike and energy tailwinds

"The Norges Bank delivered a hawkish hike. NOK outperformed in part because the market was split going into today’s policy decision. The Norges Bank increased the policy rate 25bps to 4.50%, after staying on hold the last two meetings, and signaled preparedness to “raise the policy rate further if warranted by the inflation outlook.”"

"Indeed, the Norges Bank new policy rate forecast implies a 40% probability of another 25bps hike to a terminal rate of 4.75% by Q2 2027. That’s largely in line with market pricing."

"Bottom line, rising odds of additional Norges Bank hikes limits policy divergence with the Fed and USD/NOK upside. More importantly, Norway’s energy exposure remains a key tailwind for NOK."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)