Norwegian Krone Undervalued But Unlikely to Rise Much — Market Talk

The Norwegian krone could rise further after Norges Bank cut interest rates but signaled no further reductions until mid-2026, ING's Francesco Pesole says in a note. Norges Bank had previously signaled another rate cut in the first quarter of 2026. "Based on today's communication, it is clear that the bar for further rate cuts is higher, as Norges Bank wants to see more compelling evidence of disinflation." The delayed easing cycle strengthens the case for the krone to rise in the medium term, he says. "We now think [the euro] can break below 11.00 [krone] before mid-next year." The euro falls 0.2% to 11.5725 krone. (renae.dyer@wsj.com)

The Norwegian krone could fall if the Norges Bank cuts interest rates on Thursday, ING analysts say in a note. Underlying inflation remained above 3% in August, meaning the decision on whether to cut rates is a toss-up, they say. The market prices a 55% chance of a 25 basis-point rate cut and a 45% chance rates will be left unchanged, LSEG data show. A cut looks slightly more likely, the analysts say. "If we are right with our Norges Bank call, then the euro versus the krone is due an upward correction in the near term." ING expects the euro to rise to 11.70 krone in one month from 11.5720 currently. (renae.dyer@wsj.com)

The Norwegian krone could come under pressure as the Norges Bank is likely to cut interest rates more aggressively next year, BCA Research strategists say in a note. Norway's economic recovery could be delayed by a weak energy sector while the labor market is starting to show signs of deterioration, they say. That could prompt the Norges Bank to cut rates more than expected next year. This bodes poorly for the krone, especially against the dollar. "The krone has less downside against the euro and the Swedish krona, given that it has already reversed much of its gains since June." The dollar rises 0.1% to 10.1783 krones as the U.S. currency recovers but the euro falls 0.3% to 11.8895 krones. (renae.dyer@wsj.com)

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0805 ET - The Norwegian krone could come under pressure as the Norges Bank is likely to cut interest rates more aggressively next year, BCA Research strategists say in a note. Norway's economic recovery could be delayed by a weak energy sector while the labor market is starting to show signs of deterioration, they say. That could prompt the Norges Bank to cut rates more than expected next year. This bodes poorly for the krone, especially against the dollar. "The krone has less downside against the euro and the Swedish krona, given that it has already reversed much of its gains since June." The dollar rises 0.1% to 10.1783 krones as the U.S. currency recovers but the euro falls 0.3% to 11.8895 krones. (renae.dyer@wsj.com)

0757 ET - Gold futures rise after Friday's Alaska summit between President Trump and Russia's Vladimir Putin ended without a ceasefire in Ukraine. Futures are up 0.3% at $3,392.30 a troy ounce. The precious metal is attracting safe-haven demand on persistent geopolitical uncertainty, Tradu.com's Nikos Tzabouras says in a note. Moderating inflation and a weakening labor market have also increased expectations for the U.S. Federal Reserve to lower interest rates, Tzabouras says. This has weighed on the U.S. dollar and makes non-interest bearing bullion more attractive, Tzabouras writes. Still, any progress in talks between Trump and Putin alongside potential U.S. security guarantees to Ukraine could temper safe-haven demand and there is no guarantee of aggressive monetary policy easing, Tzabouras adds. (joseph.hoppe@wsj.com)

0715 ET - A plunge in European exports to the U.S. should prove temporary, writes Jack Allen-Reynolds at Capital Economics. Exports from the E.U. across the Atlantic hit their lowest level in 18 months in June, capping a weak quarter after a surge in exports earlier in the year. But that drop was down to a fall in pharmaceutical and related products after U.S. firms stockpiled in the first quarter, ahead of April's tariff announcement, Allen-Reynolds notes. "The decline to such a low level of exports appears to be temporary rather than a permanent hit from higher tariffs," he says.(joshua.kirby@wsj.com; @joshualeokirby)

0648 ET - Despite concerns about overcrowding or heatwaves, tourism to southern Europe is growing at a faster rate than northern Europe, Capital Economcis' Adrian Prettejohn says in a note. That's because since the pandemic tourism has been growing more quickly during the off-peak season, in part driven by fewer adults having children and price spikes in the peak season, he says. A greater proportion of people in early stages of retirement also means they have the time, wealth and mobility to travel. The shift to a more equal distribution could offer a significant boost to GDP in the medium term to countries more reliant on tourism, partly as traditional seasonal summer work gives way to lower unemployment throughout the year, Prettejohn says. (edward.frankl@wsj.com)The upcoming Jackson Hole Symposium starts Thursday. "Powell Likely to Cast Light on Fed's Near-Term Policy in Jackson Hole — Market Talk," at 0917 GMT, incorrectly said the symposium starts Friday.

0644 ET - U.S. companies could pass on the cost of tariffs to consumers, increasing concerns about the economy and causing the dollar to weaken, Commerzbank's Michael Pfister says in a note. This would increase inflationary pressures and probably cause consumers to reduce spending, he says. "Since U.S. consumers are the main drivers of U.S. growth, this would likely increase concerns about the real economy." Higher inflation data could become increasingly evident. However, given the Federal Reserve faces political pressure to cut interest rates, it's questionable whether the central bank would halt policy easing in this scenario, he says. Commerzbank forecasts the euro will rise steadily against the dollar until the end of 2026. The euro falls 0.2% to $1.1679. (renae.dyer@wsj.com)

0616 ET - Base metal prices fall, with LME three-month copper down 0.2% at $9,740 a metric ton and LME three-month aluminum down 0.5% at $2,589.50 a ton. A stronger U.S. dollar is weighing on demand, as it makes it more expensive for international buyers to purchase dollar-denominated commodities. Still, copper remains up 0.15% on week amid concerns of tighter supply. Hedge fund buyers returned to copper in the prior week, Saxo Bank's Ole Hansen says in a note. This was spurred by supply disruption at Chile's El Teniente mine following a fatal accident, Hansen writes. An environmental disaster at a Chinese state-owned mine in Zambia has further compounded the negative supply outlook, adding some support to prices. (joseph.hoppe@wsj.com)

0613 ET - The dollar could receive some support if Federal Reserve Chair Jerome Powell fails to deliver clear guidance on interest-rate cuts in his Jackson Hole speech Friday, MUFG Bank's Lee Hardman says in a note. At last year's Jackson Hole symposium, Powell said it was time to adjust policy. This was followed by a 50 basis-point rate cut at the next meeting. The risk is that Powell refrains from providing a clear signal over the timing of the next rate cut this Friday to allow more time to assess incoming data before the September meeting, Hardman says. "It could help to dampen downward pressure on the dollar in the near term," he says. The DXY dollar index rises 0.1% to 97.995. (renae.dyer@wsj.com)

0605 ET - The cost of insuring euro high-yield corporate bonds against default edges up after falling last week. President Trump's meeting with Russian President Vladimir Putin "predictably ended with a lack of any agreement that ends the war in Ukraine," says Scope Markets' Joshua Mahony. This leaves a "somewhat downbeat tone" on European markets, he says in a note. Investors are also cautious ahead of Federal Reserve Chair Jerome Powell's speech at Jackson Hole later this week. Unexpectedly high U.S. producer-price data made a September rate cut less certain and "could hold back any major dovish shift from Powell," Mahony says. The iTraxx Europe Crossover index of euro high-yield credit default swaps rises 1 basis point to 261bps, S&P Global Market Intelligence data show. (jessica.fleetham@wsj.com)

0552 ET - China's market outlook remains dependent on the government following through with supportive policies, IG analyst Axel Rudolph says. Economic growth data remain soft and deflationary pressures are still lingering, and the recent market rally should be viewed in the context of other Asian indices also hitting record highs, he notes. Still, government-linked funds driving flows into big onshore exchange-traded funds, efforts to clear housing inventory and hopes of further monetary policy easing will help, Rudolph says. Cheap valuations and richer state-owned enterprise dividends will also help attract buyers, Rudolph adds. (kimberley.kao@wsj.com)

0542 ET - U.S. tariffs on European and U.K. goods have caused government-bond yield curves to steepen as investors demand higher compensation for holding longer-dated debt, RBC Capital Markets' analysts say in a note. European bond curve steepening--where the gap between short- and long-dated yields widens--has accelerated since the latest set of U.S. tariff increases and adjustments came into effect on Aug. 7, they say. "That date appears to align with the start of the recent curve steepening moves seen in the U.K. and eurozone curves." Investors have been demanding a higher term premia--an additional yield for holding long-dated rather than short-dated bonds--, they say. (emese.bartha@wsj.com)

0529 ET - Political pressure on the Federal Reserve is creating turbulence in U.S. Treasurys and could accelerate the recent steepening of the Treasury curve, says Insight Investment's Peter Bentley in a note. "We can envisage further curve steepening," the global head of fixed income says. When a bond curve steepens, the gap between short- and long-dated yields widens. If pressure on the Fed's independence looks to be worsening this would likely result in shorter-dated Treasury yields declining and longer-dated yields rising, Bentley says. The two-year Treasury yield falls 1.9 basis points to 3.738%; the 10-year Treasury yield falls 3.7 basis points to 4.290%; and the 30-year drops 3.6 basis points to 4.888%, according to LSEG. (emese.bartha@wsj.com)

The Norwegian krone could recover as the currency's recent underperformance and higher-than-expected inflation warrant caution with interest-rate cuts by the Norges Bank, ING analyst Francesco Pesole says in a note. The market expects a September rate cut and is pricing in a decent chance of another move in December. However, the risks are becoming more skewed to just one cut by year-end, Pesole says. The Norges Bank is likely to leave rates unchanged at Thursday's meeting and could sound cautious about future rate cuts, he says. The euro falls 0.3% to 11.9289 krone and ING expects it to reach 11.60-11.70 by year-end. The euro hit a three-and-a-half month high of 11.9886 krone Friday, LSEG data show. (renae.dyer@wsj.com)

one-week historical volatility is back below 7.0, confirming markets' extra caution in dealing with United States President Donald Trump's tariff announcements, said ING.

By comparison, this peaked at 20 in April and was above 9.0 only a couple of weeks ago. What is also worth noting is that the one-month 25-delta risk reversals — the difference in price between calls and puts — have returned to zero, wrote the bank in a note.

That had fallen to negative territory in June, but bounced back rapidly. Should this decline prove sustainable, it would signal markets are seriously scaling back bullish views on the pair — another testament of how the US dollar (USD) isn't bearing the risks associated with this round of tariff announcements for now, stated ING.

A U.S.-European Union trade deal seems imminent, with reports suggesting the European Commission's interim draft should include asymmetrical tariffs on EU products — likely the 10% base tariff — effectively choosing to de-escalation path, according to the bank. That is likely priced in by now, and barring major surprises in the details of the deal, may stay attached to the 1.170-1.175 area for now.

In the absence of relevant eurozone data, ING will keep monitoring European Central Bank speeches. Wednesday, Governing Council member Robert Holtzmann reaffirmed his ultra-hawkish stance by saying rates shouldn't be lowered any further, while the more moderate Joachim Nagel didn't rule anything out. Thursday, investors will hear from three dovish-leaning members: Fabio Cipollone, Jose Luis Escriva and Francois Villeroy de Galhau.

Norway released June consumer price index figures earlier Thursday. While headline inflation undershot expectations for an increase by staying flat at 3.0% year over year, underlying CPI accelerated from 2.8% year over year to 3.1%, faster than the consensus 3.0%. A key argument for Norges Bank's surprise June rate cut was that underlying inflation was back below 3.0%, pointed out ING.

As that drop didn't prove sustainable, there is little room for Norges Bank to cut again already in August, it added.

has been little touched by the release, as markets were already pricing in little to no chance of an August cut, while the dovish tilt in June may prevent substantial unwinding of September rate cut bets.

The bank's view is bearish. The impact on risk sentiment from Trump's new wave of tariff announcements has been minimal, and the pair is trading 3.0% above its short-term fair value according to ING's model. This is primarily due to the euro's (EUR) outperformance, which may, however, lose some steam as concerns about eurozone growth may arise in the coming months. A return to the 11.50 handle in would be entirely in line with fundamentals.

ING believes a rate hike may be more likely than rate cuts for the Czech central bank (CNB).

This leads the bank to a bullish view on the koruna (CZK) despite currently strong levels. While the first hike may still be a long way off, the persistent hawkish tone versus Central and Eastern European (CEE) peers and the Federal Reserve and ECB still in a cutting cycle should further support lower.

ING sees 24.500 as a first stop, outperforming CEE peers.