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Investing.com -- UBS suggests that the Norwegian krone (NOK) possesses further upside potential, having swiftly recovered from recent market turmoil. The currency’s rebound indicates a growing investor confidence in an asset that has been overlooked for an extended period. With easing concerns over global growth and a de-escalation in the trade war, risk exposure is once again on the rise among investors.
The krone’s resurgence comes as financial conditions globally continue to loosen, a trend that UBS believes will bolster risk assets moving forward. In Europe, fiscal stimulus within the Eurozone is expected to have beneficial effects on Norway’s economy, potentially offsetting negative impacts from tariffs.
Norges Bank’s decision to hold off on initiating an easing cycle in May, influenced by strong economic data, has maintained the NOK’s carry advantage. This, coupled with the currency’s sharp rally following March’s CPI data, suggests that monetary policy is playing a more significant role in the NOK’s performance this year compared to the last.
UBS notes that the EUR/NOK downtrend has picked up again after a spike in April. With an anticipated growth in Norway’s economy and a solid NOK carry, the firm expects the EUR/NOK to approach 11.00 by mid-next year.
Resistance is seen at the 12.00 level, which has been resilient during risk-off periods. Conversely, support levels are identified at 11.50 and 11.30, with the 11.10 to 11.20 range marking the lower boundary of the pair’s trading over the past two years.
However, UBS also cautions that risk factors such as renewed threats or unexpected announcements could prompt a reversal, potentially driving the EUR/NOK back to the 12.00 mark, given the currency’s sensitivity to risk and volatility.
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