Arne Lohmann Rasmussen
Danske Bank A/S
Lately several policy makers have been talking about the strength of their respective currencies. Yesterday PM Juncker said that the euro is ‘dangerously high’. However, we doubt his comments will have any lasting effect on the euro as long as the ECB is not ready to accommodate any attempt to weaken the euro..ECB has already said that a new rate cut is not an option and there is close to no chance that the ECB will engage in quantitative easing policies for the foreseeable future. Hence, in an environment characterized by an improvement in the cyclical outlook and strong risk sentiment we still see EUR/USD crawling higher over the next three to six months.
See FX Forecast Update: Euro gains to continue in 1H 2013 that we published yesterday.Also Norges Bank was on the newswires yesterday, Vice Governor Qvigstad said that rates would be impacted if the current value of the NOK is sustatined ahead of the March monetary policy meeting. There is a bit of déjà vu over this comment. March last year Norges Bank slashed rates by 25bp in a genuine surprise move referring to the strong NOK. Norges Bank was strongly criticized for very poor communication, as they had given absolutely no clues that a rate cut was considered. Hence, the comment today might serve as a reminder to the market, that all options are open for Norges Bank and a further short-term move higher in EUR/NOK is certinly a possibility, and we consider taking some early profit in our short GBP/NOK trade recommendation that we entered December 5th in our FX Top Trades. But that said, we think the Norges Bank was yesterday primarily pointing to the rate path and not a new rate cut. Norges Bank are in our view basically saying that rates will not be hiked with the current value of the NOK. Remember, March 2012 the NOK (I44) was significantly stronger than presumed by the central bank. The trade-weighted NOK is also slightly stronger than presumed by Norges Bank today, but certainly not to the same degree as was the case March last year.
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