NewsEbury: Norwegian Krone soars as Norges bank hikes rates

The Norwegian Krone was the week’s best performer on the back of the first G10 hike of the cycle by Norges Bank. The Federal Reserve seemed to do no more than validate most expectations with the suggestion that tapering will start in November, and yet investors sent yields violently higher, indicating that this was a hawkish surprise to most.

The sell-off in US rates as markets braced for the withdrawal of monetary stimulus hammered major emerging market currencies, all of which ended the week down against the dollar, save the Russian Ruble, which was buoyed by rising energy prices, especially in Europe. Meanwhile, the fallout from the Evergrande crisis in China continues to be limited. Focus should now shift to macroeconomic data, with inflation front and center.


The Czech koruna had a pretty uneventful week, ending it slightly lower against the euro. Yet again, it outperformed the Polish zloty and the Hungarian forint.

The key event this week will be the Czech National Bank meeting. Thursday is likely going to bring another interest rate hike. This time, Czech decisionmakers are likely to raise rates by 50 bp., reacting to higher and potentially more persistent inflation. Economists are expecting a 50 bp. hike particularly after recent comments by CNB’s Vojtech Benda suggesting most members could back more rapid tightening.

Koruna might receive a modest boost if the bank delivers a 50 bp. hike. However, CNB rhetoric could prove just as important as the decision itself as it might provide a better idea about the bank’s future steps.


As in the US, macroeconomic data from the Eurozone is starting to take stagflationary overtones. The September PMIs of business activity pulled back, albeit from very high levels, on a general theme of supply chain disruptions, constrained output and increased pricing power. We fully expect the key flash inflation report out this week to confirm this.

Strategists have been busy revising their forecasts upward for both the headline and core numbers, but we still see room for a surprise. This would call into question whether the ECB can afford to lag other central banks in removing monetary accommodation and could be bullish for the common currency.


Markets have been spooked by the dot plot, in which half of the participants now expect a hike in 2022 rather than 2023. At any rate, bond yields in the US shot up and the dollar was dragged along with them, although perhaps not as much as may have been expected given the magnitude of the move in bonds.

This week, we would fade any moves resulting from the debt ceiling fight, which we regard as pure political theater. We will be paying close attention to the publication of the PCE deflator numbers, which have traditionally been the Fed’s preferred measure of inflation.

For more information go to