Brown Brothers Harriman’s (BBH) Elias Haddad reports that the Norwegian Krone is outperforming as underlying inflation overshot expectations in May, bringing forward rate hike bets from November to September. After a surprise 25 bps hike in May, Norges Bank keeps the door open for another increase, with elevated energy prices supporting a firmer NOK, the top major performer year‑to‑date.

Hot inflation and energy support stronger NOK

"NOK is up against most major currencies.Norway underlying inflation ran hot in May. The swaps curve brought forward bets of a follow-up 25bps Norges Bank rate hike from November to September."

"Underlying CPI unexpectedly increased to a four-month high of 3.4% y/y (consensus: 3.2%, Norges Bank forecast: 3.3%) vs. 3.2% in April, while headline CPI matched consensus at 3.1% y/y (Norges Bank forecast: 3.3%) vs. 3.4% in April."

"At its last May 6 meeting, the Norges Bank delivered a surprised 25bps rate hike to 4.25% and left the door open for another hike by year-end because “inflation is too high and has run above target for several years.” Bottom line: a hawkish Norges Bank and elevated energy prices continue to underpin a firmer NOK. NOK is the top performing major currency year-to-date."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)