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EUR/NOK Grinds to New High, Threatens Fresh Pressure on I-44 Rate

NOK
  • EUR/NOK continues to grind higher, hitting a new cycle best at 11.6341 today and the highest since Apr'20. The moves today will be adding pressure to the already weaker-than-expected imported-weighted I44 rate used by the Norges Bank in policy-setting.
  • Yesterday's I44 close of 121.15 was decidedly above the Bank's March projection of 119.50 for Q2 (Dec MPR forecast was 110.73), meaning a convincing NOK rally will have to follow in order to prevent the Bank revising their FX forecasts further still at June's forecast round and will add further pressure to the bank to raise rates again at the May 4th meeting.
  • Recall the March meeting specifically flagged the weaker NOK as pushing up future inflation - an issue that has only worsened over the past month.
  • Key upside level in EUR/NOK crosses at 11.7486 - the 61.8% retracement for the 2020-2022 downleg and could come into play should the Apr'20 high of 11.6966 give way.

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