Divergence in Central Bank Policy

Central bank policies are starting to diverge. Norges Bank is likely to lower its interest rate in September after Norway’s July inflation report showed a drop to 2.8%. Meanwhile, the Eurozone’s core inflation remains stubbornly above 3%. This difference could strengthen the euro against the Norwegian krone. For traders, this situation may be an opportunity to buy EUR/NOK call options with later expirations. A notable rise above the 12.00 level would signal a strong bullish trend. Historically, the krone tends to weaken in the last quarter of the year, a trend seen in 6 out of the last 10 years. The krone is also facing challenges from the oil market. OPEC+ has announced a supply increase of 500,000 barrels per day starting in October, which has led to softer crude prices compared to their summer highs. This puts pressure on the Norwegian currency, which is sensitive to oil prices. Regarding the dollar, medium-term weakness against the krone is expected due to fiscal issues in the U.S. The latest Congressional Budget Office report predicts the U.S. deficit will surpass $2.1 trillion this fiscal year. This situation will necessitate a large issuance of Treasury bonds at a time when foreign central banks have been selling off U.S. debt for the last three months.

Capital Flow Dynamics

Given this outlook, a strategy of selling USD/NOK rallies using futures contracts or buying put options near the 10.20–10.30 resistance level could be effective. This tactic aims to benefit from the anticipated dollar weakness in the coming months. The case for a weaker dollar is supported by the significant amount of U.S. liabilities in government bonds, raising the risk of depreciation. Global capital flows are also influencing this dynamic. The higher U.S. tariffs implemented earlier in 2025 are expected to dampen domestic demand. In contrast, the eurozone has launched new green energy infrastructure funds this year, drawing considerable foreign investment. This shift may continue to divert funds away from the dollar. Create your live VT Markets account and start trading now.

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