EUR/NOK points to the upside as Omicron concerns hurt the krone – Nordea

The Norwegian krone is searching for direction as Omicron continues to affect markets with good/bad news appearing daily. Overall, the risk is once more to the upside for both EUR/NOK and USD/NOK in the short-term, economists at Nordea report.

Norges Bank’s rate meeting could impact the NOK

“We know that the Omicron variant is more contagious but the judgment is still not out on how severe the new strain is and how effective vaccines are. The latest news suggests that vaccines are still effective against severe disease and that booster shots also improves resistance towards getting infected. If this is proven to be the case, sentiment in financial markets could improve and NOK could strengthen somewhat. Conversely, if Omicron is proven to be worse and/or vaccines to be less ineffective, things could worsen a bit more and NOK could weaken in tandem.”

“The spread of the Omicron variant in Norway does increase uncertainty for the economy and Norges Bank’s plans for a December hike. Uncertainty is high and markets have taken down the probability for a hike to some 40%. The risk is that Norges Bank stays put in which case we could see a somewhat weaker NOK short-term.”

“The Fed is expected to announce faster reduction of it asset purchases and sooner rate hikes. Any more hawkish signals than markets currently expect should be good news for the USD.”