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ING: Potential reduction in FX purchases in December could benefit the Krone in EUR/NOK exchange rate

ING: Potential reduction in FX purchases in December could benefit the Krone in EUR/NOK exchange rate

The Norwegian Krone (NOK) has been under pressure against the Euro (EUR) in recent months, but there are signs that the tide may be turning. According to analysts at ING, a potential reduction in foreign exchange (FX) purchases by the Norwegian central bank in December could benefit the Krone and lead to a strengthening of the EUR/NOK exchange rate.

The Norges Bank, Norway’s central bank, has been actively intervening in the currency markets to weaken the Krone and support the country’s export-oriented economy. This has involved purchasing foreign currencies, primarily Euros, to increase the supply of Krone in the market and drive down its value.

However, ING analysts believe that the Norges Bank may reduce its FX purchases in December due to several factors. Firstly, the Norwegian economy has shown signs of recovery from the impact of the COVID-19 pandemic, with improving economic indicators and rising oil prices. This could reduce the need for aggressive currency intervention.

Secondly, the European Central Bank (ECB) is expected to announce additional monetary stimulus measures in December, which could weaken the Euro. If the Norges Bank reduces its FX purchases at the same time, it could lead to a relative strengthening of the Krone against the Euro.

ING analysts also point out that the Norges Bank has been gradually reducing its FX purchases in recent months, indicating a shift in its intervention strategy. This suggests that the central bank may be more willing to let market forces determine the value of the Krone, rather than relying heavily on currency intervention.

A potential reduction in FX purchases by the Norges Bank could have several implications for the EUR/NOK exchange rate. Firstly, it could lead to a strengthening of the Krone, making it more expensive to buy Norwegian goods and services for foreign buyers. This could impact Norway’s export competitiveness.

On the other hand, a stronger Krone could benefit Norwegian consumers and businesses by reducing the cost of imported goods and services. It could also help to lower inflationary pressures in the country.

For investors, a potential strengthening of the Krone could present opportunities. If the EUR/NOK exchange rate starts to decline, it could be a good time to consider investing in Norwegian assets or diversifying currency exposure.

However, it is important to note that currency markets are highly unpredictable and subject to various factors such as economic data, geopolitical events, and central bank policies. Therefore, any potential reduction in FX purchases by the Norges Bank and its impact on the EUR/NOK exchange rate should be closely monitored.

In conclusion, ING analysts suggest that a potential reduction in FX purchases by the Norges Bank in December could benefit the Krone and lead to a strengthening of the EUR/NOK exchange rate. This could have implications for Norway’s export competitiveness, inflation, and investment opportunities. However, it is important to exercise caution and closely monitor market developments before making any investment decisions.