UBS sees euro-Norwegian krone pullback as stretched

UBS said the Norwegian krone’s recent gains against the euro have extended beyond expectations, with the currency pair falling to around 10.44, below the bank’s 10.70 target level.

Norges Bank kept its policy rate unchanged at 4.50% at its November meeting, maintaining the Norwegian krone’s yield advantage as domestic inflation remains elevated.

The central bank said inflation stays too high and rates will likely remain elevated for some time.

The krone gained ground in October despite softer oil prices and a muted reaction to the latest Norges Bank decision, pushing the euro-Norwegian krone pair well past UBS’s previous objective.

UBS strategists Clémence Dumoncel and Constantin Bolz said a corrective rebound toward 10.80 would not undermine the broader trend favoring the Norwegian krone and could provide a better level to rebuild exposure.

The bank maintained its forecasts at 10.70, 10.60, 10.50, and 10.50 for each quarter-end through September 2027.

Oil prices have fallen since September, removing some support for the krone. Norges Bank noted that gas and electricity prices have risen and domestic inflationary pressures remain elevated, with core inflation at 3.0% in September.

The central bank acknowledged that the krone is now stronger than assumed in its previous projections.

UBS identified the 10.20 area as the next threshold on the downside, while viewing a rebound toward 10.80 as a potential opportunity to re-establish Norwegian krone exposure.