BNY warns that elevated EUR/NOK levels and import price pressures reduce the appeal of short EUR/NOK trades amid inflation risks.
Higher oil prices have boosted Norway’s terms of trade, but a stronger EUR/NOK exchange rate has lifted the I-44 import price index, tempering the krone’s gains. The improvement in trade dynamics is less pronounced than in 2022, limiting further NOK weakness from central bank interventions.
Norway’s import prices are showing signs of divergence from EUR/NOK movements, mirroring Sweden’s trend and raising pass-through inflation risks. While NOK’s year-to-date performance provides a buffer against inflation, Norges Bank remains focused on domestic factors, though wage and inflation expectations pose risks.
Investor positioning and valuation concerns make short EUR/NOK trades unattractive, with import price pressures potentially fueling second-round inflation effects. The currency’s reaction to external shocks differs from peers due to Norway’s energy-driven supply dynamics.