Goldman: Beta Bites, Even For The Hawks

Goldman Sachs note that the “Norges Bank delivered a surprise 50bp hike and communicated that it plans to also raise rates by 25bp in August, rather than only moving at every other meeting as it has been doing, but NOK barely budged on the decision. We think this reveals two important factors for the currency. First, Norges Bank is actively intervening in the other direction - while FX & foreign policy movements were two of the most important factors behind its more aggressive policy path, Norges is potentially adding to those pressures by selling NOK 1.5bn per day. In our view, this suggests that bullish views on Norway are better expressed in rates than FX. Second, and more broadly, recent NOK weakness is strongly correlated with the selloff in equities and weaker broader risk sentiment. Even with generally favorable fundamentals, it is difficult for NOK to appreciate when recession concerns are elevated. This also applies to SEK, where recent upside inflation surprises and a further shift higher in inflation expectations justifies the market pricing some chance of a 75bp Riksbank move this week, in our view, but this is unlikely to turn EUR/SEK meaningfully. Given the more difficult risk environment, we are making some revisions to our Scandi FX forecasts. We are moving our EUR/NOK forecasts to NOK10.60, NOK10.70 and NOK10.80 in 3, 6 and 12 months (from NOK9.90, NOK9.80 and NOK9.60 previously) and our EUR/SEK forecasts to SEK10.80, SEK10.90 and SEK11.00 (from SEK 10.30, SEK10.20 and SEK10.00).”