The NOK is the worst-performing G10 currency this year. But Norway falling inflation expectations can help the Krone, economists at Société Générale report.

Falling inflation expectations could allow Norges Bank to hike further

“In the medium term, we observe that the EUR/NOK direction tends to follow relative consumer confidence between the Euro-area and Norway. In the current economic context, this indicator is linked to inflation pessimism, and the recent positive inflection in Norway could signal the end of FX losses. In a survey published this week, households in Norway now expect inflation at 4% in one year, from 6% one quarter ago.”

“Falling inflation expectations could allow Norges Bank to hike further, and importantly, the revival of consumer confidence could eventually help NOK to recover.”