The Swedish Krona (SEK) has significantly outperformed all other G10 currencies this year, including the Norwegian krone. There are good reasons for the SEK's outperformance; one of the most important is the presence of major defense companies. At a time when Europe wants to increase defense spending, this is certainly not a disadvantage, Commerzbank's FX analyst Michael Pfister notes.

Norges Bank is likely to stay on hold for the time being

"Did the NOK lag behind solely due to reasons specific to the SEK? I have my doubts. You may recall that last year, we published several hotspots to determine the reasons behind the NOK's exceptional weakness at that time. The NOK is heavily dependent on oil price developments. This is certainly not unexpected for a country that is one of the world's leading oil exporters. However, the oil price has fallen significantly this year, largely due to increased supply from OPEC+ countries. The krone is also suffering as a result."

"In January, we emphasized that real interest rates were a key factor in the weaker krone. Over the past 15 years or so, Norwegian real interest rates have consistently lagged slightly behind those of other countries. At first glance, one might think that this has changed, given that Norges Bank was one of the last central banks in this interest rate cycle to start cutting rates. However, inflation is also significantly higher and more persistent in Norway than in other countries. Yesterday's figures, which once again came in higher than expected, made this clear once more. It is possible that the figures were just an upward outlier. Even if this is the case, it is clear that Norwegian real interest rates have barely exceeded Swedish rates in recent months."

"According to our commodity analysts, the oil price is likely to stabilize in the coming months. I am not so sure about real interest rates, however. We have often emphasized that interest rate cuts are not necessarily harmful to a currency if inflation allows it. However, current inflation in Norway does not really allow for this, which is probably why you can guess my opinion on the Norges Bank's interest rate cuts this year. This may change in the coming months, as the Norges Bank is likely to stay on hold for the time being. But this also explains the discrepancy in the performance of the Scandinavian currencies."