Markets expect the Norges Bank to hold rates at 0.75% tomorrow. Economists at Credit Suisse leave their Q2 EUR/NOK target unchanged at 9.80 as new headwinds for NOK limit the extent to which the currency can benefit from a more hawkish than expected outcome.

Market pricing leaves limited scope for an enduring NOK rally

“We think 9.80 remains an appropriate EUR/NOK target for Q2. We acknowledge risks from the meeting tilt in a hawkish direction, but we do not think these risks are sufficient to justify a more ambitious EUR/NOK downside target.”

“The market’s priced-in tightening expectations are mostly aligned with the Norges Bank’s guidance, in contrast with other G10 markets that are pricing in larger hawkish pivots. As such, market pricing leaves limited scope for an enduring NOK rally, even in the event of a surprise rate hike.”

“News from 28 Apr confirming that the Norges Bank would continue to sell 2bn NOK per day through May on behalf of the government reinforces our expectations that NOK longs now face more headwinds.”