EUR/NOK: Recent krone weakness to reverse – MUFG

The Norwegian krone was the worst performing G10 currency in November. Looking ahead, economists at MUFG expect the undervalued NOK to strengthen in the next year as the Norges Bank hikes rates. 

A big downside risk is the emergence of the new Omicron COVID-19 variant

“We expect OPEC+ members to decide to slow plans to further increase oil production in the near-term. We only expect tight oil market conditions to improve from around the middle of next year.”

“A bigger downside risk is the emergence of the new Omicron COVID-19 variant. It has already reinforced fears that had been building over an economic slowdown in Europe that had been weighing on the krone.”

“New COVID-19 cases in Norway have also hit their highest level during the pandemic putting pressure on the government to re-tighten restrictions. It would likely be only a temporary setback for Norway’s economy that has rebounded strongly.”

“We still expect the Norges Bank to continue gradually raising rates. In these circumstances, we expect the undervalued krone to strengthen in the year ahead.”