Norges Bank governor Olsen’s annual address last night did not contain any near-term policy signals. However, it included the following statement: ‘Given the prevailing long-term interest rates abroad, it will likely take a number of years for interest rates in Norway to move up towards a level that was previously considered to be normal’. This could be interpreted as a dovish signal but in an interview with the web edition of Dagens Næringsliv, the governor stressed that the comment refers to the period beyond the projections in the monetary policy report. The Norwegian krone, which lost more than 10% to the euro last year, has stabilized in 2014 and we do see tentative signs that the krone negative flows are abating – and potentially reversing. And given the recent spike in core inflation and strong Q4 GDP numbers the outlook for the NOK looks constructive. But that said, remember there is no key events to drive the market next week, so we might short-term see some “profit-taking” after the recent drop in EUR/NOK.
Yesterday, we also had the new Riksbank monetary policy report and the policy announcement. For a change the policy committee agreed on the rate announcement. Hence, the usual dovish voters also supported that rates were kept unchanged, but that might change next time given that we look for low inflation numbers next week and weak GDP numbers the week after. Hence, we continue to see upside for EUR/SEK in the short term and we have a 1M target at 8.90 for EUR/SEK.
This morning we have seen the release of euro zone country GDP numbers for Q4. Both France, Germany, the Netherlands have surprised on the upside rising 0.3%, 0.4% and 0.7% all q/q, respectively. The numbers have supported the euro this morning and EUR/USD is above 1.37 again. Note also that USD is currently under pressure, especially after the US retail sales disappointed heavily yesterday. Sales fell 0.4% in January but importantly there were downward revisions to both December and November – which basically changes the picture from a strong holiday shopping season to a somewhat weak one. Even though one might blame the poor weather for some of the weakness in the US numbers, it is probably not the whole story. We are now in a situation where the market might start to speculate if the Fed will pause the tapering process. If they – contrary to our view – do so in the spring it could put further pressure on the US dollar.
Danske Bank