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NOK: Likely to look through Friday CPI, with more notable drivers at play

NOK
USCEEMEABulletNorwayGlobalForeign Exchange BulletsRegionNorth America

Friday’s CPI report may not be enough to sway the Norges Bank away from its hawkish guidance, even if inflation remains below projections. This is due to the sharp weakening of the krone since the June decision - which would theoretically result in upward pressure on a revision to the bank's policy path.

  • Tensions among Israel, Iran and Hezbollah remain high. An earlier drone attack wounded two people on Israel’s Western Galilee, while Hezbollah leader Hassan Nasrallah has announced further retaliatory intensions on Israeli sites in an earlier speech.
  • These tensions, and the potential for spillover into oil/gas prices, may provide scope for further volatility in NOK crosses.
  • Implied and realised vols ran higher on the acute risk-off trade across Monday, keeping options premiums well elevated ahead of recent averages. 1-week implied vols trade at the highest levels since January this year, meaning a 1-week ATM NOKSEK straddle requires a >1% swing to breakeven.
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Friday’s CPI report may not be enough to sway the Norges Bank away from its hawkish guidance, even if inflation remains below projections. This is due to the sharp weakening of the krone since the June decision - which would theoretically result in upward pressure on a revision to the bank's policy path.

  • Tensions among Israel, Iran and Hezbollah remain high. An earlier drone attack wounded two people on Israel’s Western Galilee, while Hezbollah leader Hassan Nasrallah has announced further retaliatory intensions on Israeli sites in an earlier speech.
  • These tensions, and the potential for spillover into oil/gas prices, may provide scope for further volatility in NOK crosses.
  • Implied and realised vols ran higher on the acute risk-off trade across Monday, keeping options premiums well elevated ahead of recent averages. 1-week implied vols trade at the highest levels since January this year, meaning a 1-week ATM NOKSEK straddle requires a >1% swing to breakeven.