Pound sterling and Norwegian krone lead the pack (Daily analysis 10.02.2021)

Main currencies continue to trade firm against the dollar. Oil prices maintain an upside trajectory while equities take a breather, yet remain within a stone’s throw from recent highs. On Wednesday, market participants will ponder numerous inflation prints, including US CPI due in the afternoon.

The EUR/USD has recently clawed back above the 1.21 mark, yet volatility remains subdued, and the main currency pair has been unable to recover above 1.2150 so far. The pound to dollar exchange rate broke through the 1.38 barrier and trades at the highest levels since 2018. Noteworthy, the EUR/GBP settled below 0.88 boundary and now remains poised for a further decline.

The Norwegian krone is a clear outperformer. Not only the currency is boosted by soaring oil prices, but also local idiosyncrasies remain supportive. Inflationary pressures moderated in January, albeit at a slower pace than was previously anticipated. A solid recovery fueled by fiscal expansion executed with the money coming from the oil fund should prevent core inflation from declining below the Norges Bank target set at 2 pct. Consequently, the interest rates may rise as soon as in the first quarter of 2022, as the central bank is worried by skyrocketing property prices.