As the forex market braces for the impact of the upcoming U.S. elections, significant movements have been observed in the EUR/NOK currency pair. Recent analysis by Francesco Pesole, an FX analyst at ING, reveals that the euro has tested the 12.0 near-term target against the Norwegian krone (NOK). This development suggests potential challenges in foreign exchange (FX) liquidity conditions as traders prepare for what could be a contentious voting outcome.
EUR/NOK and Deteriorating FX Liquidity
The recent dip in the NOK against the euro reflects a broader trend of weakness in the krone, which is likely to influence the monetary policy stance of the Norges Bank. With markets anticipating no risk of an interest rate cut at the upcoming Thursday meeting, the krone’s vulnerability may solidify the Norges Bank’s position as a hawkish outlier among its European counterparts. This contrasts sharply with the current trends seen in other European currencies and highlights the unique economic pressures faced by Norway.
Norges Bank’s Stance Amid Economic Pressures
Norges Bank has consistently maintained a tighter monetary policy, a stance that could provide the krone with some support in the face of external pressures. As the central bank meets on Thursday, market participants will be keenly focused on any hints regarding future rate adjustments. With the current pricing indicating stability, the absence of a rate cut would reinforce confidence in Norway’s economic resilience, despite the broader challenges presented by fluctuating currency values.
Also read : Euro Gains Ground As US Election Uncertainty Weighs On Dollar
Riksbank Meeting: Anticipated Moves and Market Reactions
In addition to the developments in Norway, attention is also directed towards Sweden’s Riksbank, which is set to hold its own meeting on the same day. Market expectations align with a 50 basis point increase, reflecting consensus and existing market pricing. However, the potential for a severe selloff in the Swedish krona (SEK) following the U.S. elections could shift the balance of risk towards a more conservative 25 basis point hike.
The divergence in monetary policy approaches between the Norges Bank and the Riksbank underscores the unique economic landscapes within the Nordic region. Investors will be closely monitoring the outcomes of both meetings, particularly in light of potential shifts in FX liquidity conditions that could arise from the U.S. electoral results.
