New research from Danske Bank Markets.

EUR/NOK. We think it is premature to rule out short-term easing from Norges Bank and expect it to address liquidity directly and/or cut rates in September. Indeed, Norges Bank is aware that keeping policy unchanged would implicitly ratify the Nibor-based monetary tightening, triggering additional NOK strength (see Norges Bank Dilemma , 12 August). Therefore, we see risks asymmetrically skewed towards a higher EUR/NOK following the latest fall. We forecast EUR/NOK at 9.30 in 1M (from 9.50), 9.30 in 3M (9.40), 9.10 in 6M (9.20) and 8.90 in 12M (9.00).

EUR/SEK. We expect the Riksbank to stay focused on the exchange rate and the ECB and we expect it to match the ECB with further stimulus measures later this year. A growth slowdown is removing some of the previous tailwind for the krona. The Swedish economy is still in good shape though and most macroeconomic metrics still stand out versus European peers. Fundamentally the krona is a strong buy, in our view, but at the same time we expect monetary policy to remain extremely loose, which is why the krona is weak and is expected to remain weak, around the current level, for the next couple of months. Our forecast profile is almost unchanged at 9.40 in 1M, 9.30 in 3M, 9.30 (previously 9.20) in 6M and 9.10 in 12M.

EUR/DKK. We forecast EUR/DKK will trade at 7.4400 in 1M and 3M, revised up from 7.4350 and 7.4375, respectively. Over the medium term, we still expect EUR/DKK to trade close to the strong end of the historical trading range, targeting 7.4375 in 6-12M. We still look for Danmarks Nationalbank (DN) to cap EUR/DKK downside around 7.4350 by selling DKK in FX intervention.

EUR/USD. We adjust upward our EUR/USD forecasts to 1.12 in 1M (1.09 previously), 1.12 in 3M (1.07), 1.14 in 6M (1.10) and 1.18 in 12M (1.14). Brexit has not had the expected negative growth implications on the eurozone. While we still expect that the eurozone will be hit with a lag we do not expect the ECB will cut interest rates. Political uncertainty in both the eurozone and the US will weigh on markets. However, this could be both EUR and USD positive. We maintain our long-held view that over the medium-term EUR/USD will head higher due to the undervaluation of the EUR and the large eurozone-US current account differential which is currently at the record level of Q4 04.

EUR/GBP. We expect EUR/GBP to continue to trade higher in the coming 3-6 months. Our bearish view on GBP is not just a story of monetary policy easing in the UK, but the case for a weaker GBP is also very much a macroeconomic story about an adjustment of a large current account (CA) imbalance. The GBP has to weaken to adjust the large CA deficit. We have lifted our 3-12M forecasts targeting EUR/GBP at 0.90 (0.88) in 3M, and 0.95 (0.90) in 6M. Longer-term, we still expect the GBP will stabilise to some extent given attractive valuations. We target EUR/GBP at 0.90 (0.88) in 12M.

FX Forecast Update: The USD has peaked, medium-term weakness