Date: 19 Sep 2018

If market expectations are correct, the Norwegian central bank (Norges Bank) will raise interest rates by 0.25 percent to 0.75 percent tomorrow at 0900h UK time. The question for traders is whether this increase is already priced in the value of the Norwegian krone (EURNOK, USDNOK, NOKSEK). Market reaction to the hike may depend more on whether or not the Norges Bank adjusts its interest rate forecasts for future hikes and how it indicates it may proceed. Dutch bank ING is of the view the rate hike will be accompanied by “an upwards shift in the interest rate forecast to signal the possibility of three hikes more hikes in 2019” and argues that “this should provide another boost for the krone, which could see EUR/NOK fall towards 9.50.” But traders might also be interested to discover whether any adjustments to the Norges Bank’s forecasts make an additional hike in December more or less likely. Signs from the Norges Bank that there is an increased likelihood of a December hike might be one occurrence that isn’t that well priced in by interest rate and currency markets that do largely seem to expect both a rate hike tomorrow and an upwards shift in the Norges Bank interest rate forecast. Traders who look at the NOK might well wish to look beyond the rate hike announcement and examine the detail of the Norges Bank statement. It’s the detail that might drive the NOK on this occasion.

by Neal Kimberley, External Currency Analyst